Ferrous

Ferrous scrap recyclers are reporting a pace of activity that continues to move at a much slower speed than what had become the norm during the past several years.

The creation of less industrial scrap is matched on the buy side with a dramatic reduction in steel mill melting schedules on the sell side. However, this new tempo of business on the supply side may be matching up with steel mill demand as it currently stands, if December pricing is any indication.

The brakes were tapped on plummeting ferrous scrap prices in December, as mills in the United States paid from about $70 to $90 more per ton for buys in the spot market.

In the December buying period, prompt industrial scrap, shredded scrap and No. 1 HMS all moved up in value, according to transaction pricing compiled by Management Science Associates Inc. (MSA), Pittsburgh, for its Raw Material Data Aggregation Service (RMDAS).

"The market has come up a little bit, but the mills are still buying very little," says a recycler in the Southeast. "We have good relationships with the mills, and they let us know what they can take, and the tonnages remain off by quite a little bit."

A recycler in Michigan reports there is enough buying on the ferrous side to keep the scrap that comes in moving out of the yard at a pace that is far healthier than on the nonferrous side of the company’s business. "I went through our nonferrous warehouse and was horrified at the lack of activity," the recycler comments.

Down in Texas, a scrap processor there says he was glad to see prices bounce back up for ferrous scrap in December and reports that overseas markets chipped in with some buys out of the Port of Houston. "I think the prices will continue to inch up from this point forward," he comments. "We’re taking an optimistic approach, but a conservative one."

Longer term, he says he is hopeful that proposed infrastructure spending will help both the steel and scrap industries. "It’s something to look forward to, but it’s going to take some time for that to work its way into the [steel production] system—maybe even the fourth quarter of 2009."

As for December 2008, national averages reveal the prompt grades moving back up the most sharply, with the average spot buyer paying $96 per ton for new production scrap, such as No. 1 busheling, No. bundles and No. 1 factory bundles.

Shredded scrap prices took a healthy hike of $78 per ton as determined by the national spot buying average, while No. 1 HMS moved up $72 per ton on average.

In the North Midwest market region (Illinois, northwestern Indiana, Wisconsin, Minnesota, Iowa, Missouri, Kansas, Nebraska and the Dakotas), No. 2 shredded scrap enjoyed the biggest increase, jumping $85 per ton, more than the prompt industrial grades in that region.

The South region was more reflective of national trends, with the RMDAS prompt industrial composite grade moving up $96 per ton, while shredded scrap increased just $70 per ton. In that region, however, No. 1 HMS was bid up by spot buyers some $90 per ton more than November pricing—well above the national average.

In the December buying period measured by RMDAS, the prompt industrial composite grades traded at $251 on average nationally. The $96 per ton increase offered a nice boost from the $156 per ton paid in November and, perhaps more importantly for scrap processors, indicated that the market was again capable of moving back in the upward direction.

The December change in momentum does not appear to have been caused by renewed strength in steel mill melting schedules, if the most recent steel production figures are any indication.

The World Steel Association (www.worldsteel.org) figures for November show global steel production having dropped by some 10 million metric tons compared to the month before.

Nations that produced less steel in November compared to October include the United States, Russia, Germany, Brazil and South Korea. China and Turkey’s production remained relatively stable in November.

The steelmaking pace in the United States will continue to be determined by demand from the automotive and construction segments.

A positive scenario would have a restored credit market and stable gasoline prices bringing buyers back into the market for new vehicles, which would help makers of flat-rolled steel. Additionally, infrastructure spending could result in increased orders for makers of rebar and steel beams and decking.

But for now, steelmakers are not likely to produce more steel based on what might happen, but will keep production capacity restrained as it has been for the past few months.