Two Different Stories

TWO DIFFERENT STORIES

Processors and shippers of ferrous scrap enjoyed another month of gains in value in September, as mills paid an average of $15 to $20 more per ton on the spot market.

As indicated by transaction pricing compiled by Management Science Associates Inc. (MSA), Pittsburgh, for its Raw Material Data Aggregation Service (RMDAS), mills paid an average of $339 per ton for prompt industrial scrap on the spot market, an increase of $21 per ton compared with the $318 per ton paid in August.

Prices were up comparably for shredded scrap and No. 1 heavy melting steel, with pricing showing across-the-board gains for all grades in all regions. The upward price movement continues a three-month trend that started in July.

While American manufacturing and steelmaking activity remains sluggish, the rest of the world continues to place significant orders for ferrous scrap. Steelmakers in China remain the most active, with that nation having produced 52.3 million metric tons in August.

That figure represents close to half of the global total, according to statistics compiled from 66 nations by the World Steel Association (Worldsteel), Brussels.

The August total for steelmaking in China increased by more than 2.5 million metric tons compared to July production.

The trend of overseas demand versus sluggishness in North America was a topic at a recent scrap metals industry event.

Speaking to attendees of the Ferrous Roundtable at the 2009 ISRI (Institute of Scrap Recycling Industries Inc.) Commodities Roundtable Forum, Patrick McCormick of World Steel Exchange Marketing, Englewood Cliffs, N.J., remarked that ferrous scrap exports from the United States had returned to the large volume levels they reached in the first half of 2008, when ferrous scrap pricing reached historic highs.

McCormick and other panelists pointed to several market fundamentals that have allowed ferrous scrap pricing to remain strong even while steel mills in North America and Western Europe operate well below their productive capacities.

The economy in the United States is not necessarily one of the factors causing optimism. John Packard of the Steel Market Update news service remarked that his own surveying of manufacturers and steel service centers shows almost no expectation of a “V-shaped” or fast economic recovery.

He told attendees that just 1 percent of respondents to his survey were predicting a V-shaped recovery and only 27 percent predicted a U-shaped pattern, which also implied steady recovery. Some 37 percent reported foreseeing a jagged W-shaped recovery, while another 35 percent saw an L-shape that would not involve a recovery anytime soon.

Packard said he saw a U-shape that “seems to be bottoming out right now.” He added, “We’re going to bounce along the bottom for a while.”

Regarding the domestic economy, Mark Millet of the OmniSource division of Steel Dynamics Inc. (SDI), Fort Wayne, Ind., commented on his disappointment as to how little of the federal government’s $700 billion stimulus package was directed toward infrastructure projects in this country. This contrasts sharply with China’s emphasis on roads, bridges and power grid projects.

Sources of optimism remain overseas, in the form of expanding electric arc furnace (EAF) capacity throughout the world, with the notable exception of China. But McCormick noted that even though China has largely built basic oxygen furnace (BOF) mills, when scrap prices dropped sharply last year, producers in China “saw a great buying opportunity” and began buying more scrap as feedstock for BOF mills.

Panelist John Kopfle of Midrex Technologies, Charlotte, N.C., a maker of alternative iron production systems, said he saw more EAF growth outside of China, and perhaps within China if carbon emissions become a consideration there. “DRI (directed reduced iron) and HBI (hot briquetted iron) are in a good position going forward,” he remarked.
Millet of SDI says his company foresaw continuing pressure on scrap supplies, which is why it has invested in alternative iron technology at its Indiana mills as well as in the Mesabi Range of Minnesota. The company’s Iron Dynamics technology can produce EAF feedstock that costs about $320 per ton, said Millett, a price that is at the upper end of ferrous scrap’s historic price range but well below the high prices reached in early 2008.

One additional external factor, first mentioned by McCormick, was that if the U.S. dollar remained weak against other currencies, this would favor U.S. scrap exporters.

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