Ferrous Department

HELPING HANDS ACROSS THE WATER

Mill buyers in the United States paid in a range from $30 to $60 more per ton in May for ferrous scrap as demand from export brokers gave shippers a wider market in the early part of the month.

Transaction pricing compiled by Management Science Associates Inc. (MSA), Pittsburgh, for its Raw Material Data Aggregation Service (RMDAS) showed national spot market buyers paying $62 per ton on average more in May than in April for prompt industrial grades.

Even with slack demand, prompt grades have been hard to come by because of the meager status of industrial production in the United States in the first half of 2009. The supply pressures were demonstrated by the $62 bump in prices for the prompt industrial grades—a rise that outpaced that for other grades.

The May increase in prompt grades pricing brought an end to the April anomaly of buyers paying more for No. 2 shredded scrap on average than for prompt grades.

All three of the grades for which MSA discloses monthly averages—No. 2 shredded scrap, the prompt industrial composite and No. 1 heavy melting steel (HMS)—gained value in the May spot market compared to April.

While the prompt grades were gaining $62 in value per ton, No. 2 shredded scrap gained $39 per ton nationwide, and May spot buyers paid $38 per ton more on average for No. 1 HMS.

Regionally, scrap buyers in the North Central/East paid for the prompt grades increase most noticeably, with industrial grades rising $64 per ton in that region. In the North Midwest region, prompt gains cost mill buyers just $50 per ton more on average, while in the South the prompt grades gained just $44 in value. The average cost for prompt grades in the South was only $3 per ton more than for shredded scrap.

Beginning in mid-April, many scrap recyclers began reporting sharp increases in export demand, including consistent interest in containerized shipments.

Not all recyclers are convinced that the export demand will prove long-lasting, with some predicting that speculation caused many overseas buyers to buy scrap at what they determined was an affordable price.

If these purchases go into inventory rather than being quickly melted, the market may turn down again for the summer if overseas buying disappears.

On the supply side, one Midwestern recycler reports that volumes in April and May have been off from 40 percent to 50 percent compared to those months in 2008—citing a figure that also has been mentioned by recyclers in other parts of the country for first quarter 2008 activity.

Such reduced flows have some recyclers talking about processing overcapacity issues. One recycler in Kentucky remarks that some of the significant new capacity to his south, in states like Georgia and Alabama, is unlikely to produce sufficient return on investment any time soon.

The Midwestern recycler sees a similar overcapacity situation in his region and predicts a "shakeout" to come that, in his opinion, will lead to some shredding plants being closed down and eventually dismantled and sold off.

In the current market, "it is probably going to be more profitable to control the feedstock that is sold to shredders rather than operating the shredder," he comments.

Recyclers hoping for a boost in ferrous scrap demand are seeing only faint signs from the domestic steel industry, as U.S. steelmakers continue to operate at historically low levels.

According to the American Iron and Steel Institute (AISI), "Raw steel production the week ending May 16, 2009, was 1.06 million net tons, while the capability utilization rate was 44.4 percent. Production was 2.17 million tons in the week ending May 16, 2008, while the capability utilization then was 91.1 percent."

The 1.06 million tons figure, however, did represent a small increase from the week before. "Production for the week ending May 16, 2009, is up 3.7 percent from the previous week ending May 9, 2009, when production was 1.02 million net tons and the rate of capability utilization was 42.9 percent," according to AISI.