Profits, but problems

Earnings reports issued by United States-based steelmakers leave little doubt that 2018 has been a good year for them, including those who rely on scrap-melting electric arc furnace (EAF) technology.

Several steelmakers have issued profitable earnings throughout the year, with some acknowledging what they describe as record profits. The Trump administration’s willingness to place tariffs on most steel imported into the U.S. has clearly played a role in the steelmakers’ fatter margins.

Ferrous scrap recyclers may not have achieved quite the same level of profitability as their scrap-melting customers, but they indicate that 2018 will nonetheless be remembered as a year when they could maintain margins and sufficient scrap flows kept their yards active.

A protected environment

When President Trump announced his imported steel and aluminum tariffs early in 2018, he reportedly told a roomful of American metals industry executives that “you will have protection for the first time in a long while, and you’re going to regrow your industries.”

The president wanted job creation, and several steelmakers responded with actions to address that. Throughout the year, subsequent earnings reports released by steelmakers made it clear the government protectionist measures were proving helpful to their bottom lines.

Scrap-fed EAF steelmakers, including Charlotte, North Carolina-based Nucor Corp. and Fort Wayne, Indiana-based Steel Dynamics Inc., have reported what they at times refer to as record profits in 2018.

The prosperity and the growing output of EAF steelmakers has not left ferrous scrap recyclers uninvited to the party. As characterized by one ferrous scrap processor in the Great Lakes region, “Markets for 2018 have been fair to good for metal recyclers.”

Recyclers throughout the United States continue to report steady scrap flows thanks to reliable manufacturing output for prompt grades and scale prices that attract auto hulks, demolition scrap and other materials that contribute to obsolete grades.

Fastmarkets AMM pricing based on early November domestic mill buying and export broker buying activity shows ferrous scrap has retained its strength in most market sectors.

Fastmarkets AMM’s domestic Midwest indices show its No. 1 busheling prompt grade valued at more than $400 per ton in November, while shredded scrap was selling for an average price of $350 per ton, and obsolete grade No. 1 heavy melting steel (HMS) averaged about $325 per ton in the Midwest.

Export pricing has not fared quite as well in 2018, with overseas demand and pricing at times causing a geographic disparity in the overall U.S. ferrous scrap market.

The world beyond

Midwest scrap prices in November 2018 are averaging some $70 or $80 more per ton compared with November 2017 for recyclers who sell into that market. Ferrous scrap recyclers who sell into the export market, however, are not experiencing that same year-on-year gain.

Shipping conditions within the United States continue to cause headaches for ferrous scrap recyclers. (For more on this topic, see “Barriers and roadblocks,” beginning on page 64 of this issue.) Recyclers shipping offshore have been facing not only transportation hassles but also a different pricing dynamic.

In the November 2018 buying period, Midwest index pricing for No. 1 HMS was at $324.65, representing a 32.4 percent increase from its $245.14 price one year previously. West Coast export shippers, meanwhile, were receiving $327 per metric ton on average for No. 1 HMS during the same November 2018 buying period. That was up just 11.2 percent from the November 2017 price of $294.

East Coast exporters have experienced even less of a price rise, with No. 1 HMS registering $286.50 per metric ton in November 2017. The November 2018 average price, as measured by Fastmarkets AMM, has risen just 8.8 percent to $311.85 per metric ton.

Measured strictly by demand in the first eight months of 2018, as calculated by the U.S. Census Bureau, an observer would have expected export prices to have held steady with domestic ones.

The U.S. shipped some 11.6 million metric tons of ferrous scrap overseas in the first eight months of 2018, surpassing by 24.7 percent the 9.3 million metric tons exported from January to August in 2017.

Turkey, Mexico, Taiwan, India and South Korea have been five of the largest buyers of U.S. scrap in 2018. However, overseas purchases have been placed heavily after prices drop in a given month.

The stronger pricing in the domestic market also can be seen simply as a reflection of the strength of the domestic steel industry in the U.S. in 2018. While no mill buyers want to pay more than necessary for scrap, they have remained in the market throughout the year to feed furnaces that are running all out to meet the healthy demand for finished steel.

Through the first eight months of 2018, crude steel production in the U.S. rose every single week except for one in January, according to American Iron and Steel Institute (AISI) data presented by Becky E. Hites of Douglasville, Georgia-based Steel-Insights LLC at an October metals industry conference in Chicago.

Hite said EAF steelmakers in the United States were running at between 90 and 91 percent of capacity in the first three quarters of 2018, contributing to a healthy demand scenario for ferrous scrap processors and traders.

Hite said President Trump’s resolve to protect U.S. steelmakers might be one method of restoring the U.S. steel sector to an output level that more closely matches its steel consumption level. While Chinese mills accounted for 33 percent of the steel exported globally in 2017, North America imported 22.3 million metric tons of steel to meet its consumption needs in 2017.

For U.S. EAF steelmakers such as Nucor, which reported $1.7 billion in net earnings in the first nine months of 2018, the advantages of the tariffs are clear. For the recyclers who ship to them, the margins may not be quite as attractive, but selling to mills in the interior of America seems to have proven to be an advantage in the metals tariff economy.

The author is senior editor of Recycling Today and can be contacted via email at btaylor@gie.net.