Ferrous market braces for uncertain April pricing

The balance of supply and demand in the ferrous scrap market seems uncertain heading toward the April buying period, as the COVID-19 coronavirus causes sudden disruptions to economies around the world.

On the scrap generation side, processors interviewed by Recycling Today report a severe curtailment in purchases for the week of March 23-27. The drop in supply cuts across the industrial, demolition and retail trade sectors.

“Industrial flows have certainly dropped, I’d estimate by from 60 to 75 percent compared to the week before,” says a buyer in the Great Lakes region. “Many stamping plants that support the automotive industry have shut down, and manufacturing has slowed just as much,” he adds.

In the Southeast, a buyer is only slightly less bearish, saying, “Industrial output and demolition activities are off by at least 50 percent.” He adds, “Construction and demolition have virtually stopped, with the only ones operating being those involved in an essential capacity.”

He says of his industrial accounts that most tier one and tier two automotive suppliers have shut down, but most companies not involved in the auto sector are still running.

A processor with several locations in the Midwest fears the worst is yet to come on the supply side. “As of this week we are still quite busy, but we think this is before a potential [scale price] drop. We anticipate a 50 percent drop in volume for April.”

As alluded to by the Midwestern recycler, the critical factor in the supply equation in the near term could be the retail or peddler trade. The Washington-based Institute of Scrap Recycling Industries (ISRI) has lobbied to ensure recycling is considered an essential industry so scrap can keep flowing.

Some of the nation’s largest scrap recyclers say they are taking the necessary employee and customer safety measures to keep the retail trade viable. On its website, Cincinnati-based David J. Joseph—which has 63 locations—states, “Our recycling locations remain open during these uncertain times” before listing a series of measures it is taking to maintain sanitation and social distancing standards.

The Midwestern processor says he understands the decision by some operators to “shutter peddler traffic, and I think it makes sense out of an abundance of caution.”

Argus Media has reported that Rye, New York-based Sims Metal Management has “temporarily closed some of its United States facilities to the public over concerns about employee safety amid the coronavirus pandemic.”

The Midwesterner says of his company, “We have taken the stance that as long as we can find a safe way to serve these suppliers, we will stay open. We hate to leave these loyal customers without a source of income in these tough times. We are all in this together no matter how far apart we have to stand.”

Like ISRI with recycling, the American Iron & Steel Institute (AISI) has lobbied to ensure steelmaking is considered essential amidst the COVID-19-related lockdowns. However, drops in demand seem poised to follow the supply curtailments, with a question remaining as to whether it will be by an identical percentage.

In the week ending March 21, finished and semi-finished steel output dropped only 1.4 percent from the week before, according to the AISI. News reports and comments from recyclers both indicate, however, that steeper drops in melt shop activity likely are coming.

The scrap buyer in the Southeast says electric arc furnace (EAF) mills in Alabama, Mississippi and the Carolinas “are basically telling us they will have a greatly reduced buy in April.” He adds that the Gerdau EAF mill in Cartersville, Georgia, has announced it will be idle “until mid-April,” and that his company sells to three foundries in the region that are idle.

The Midwestern recycler is more optimistic, saying, “Most of our significant consumers are up and running.”

Overseas demand could hold steady or improve on the Pacific Coast, with many countries in East Asia having weathered their initial bouts with COVID-19. On the Atlantic Coast, however, exporters are being hit with a double whammy. Turkish mill cutbacks have now been combined with strict “shelter in place” rules in India designed to prevent the spread of COVID-19.  

How much steel gets made in North America in April will depend largely on whether the manufacturing, construction and retail sectors can return to something approaching normalcy.

The buyer in the Great Lakes region is skeptical about the auto industry’s ability to do so quickly. “Ford Motor Co. is talking about April 6, but we’ll see. In Michigan, the virus is continuing to get worse every day, with hospitals reaching their capacity. I don’t think April 6 is reasonable at this time.”

The Southeast buyer is anxious for any rebound in activity, saying, “Hopefully, we will be allowed to resume normal business soon, since it seems like COVID-19 has shut down at least 50 percent of the U.S. economy.”

The processor in the Midwest strikes a more defiant tone, stating, “As long as there is supply and demand, we will fight to keep our part of this essential supply chain up and running. We all need each other now, and the stronger we can stay together the shorter the impact on our employees, our business and our community.”