A Stable Situation

Ferrous scrap will experience some mild ups and downs into the summer, but don’t look for any of the large price movements the market experienced the past couple of years. Demand should remain firm in the domestic market, and the import/export market should continue to sort itself out. That’s the consensus from a number of industry players, although there are variations on that theme depending on where a yard is located or what its primary scrap sources and markets are.

Through 1999, everyone agrees that domestic iron and steel scrap dealers struggled. According to Michael Fenton, iron and steel commodity specialist with the U.S. Geological Survey, ferrous scrap prices were lower, on average, during 1999 than in 1998. Last year, No. 1 Heavy Melting steel scrap delivered to purchasers in Chicago, Philadelphia and Pittsburgh averaged about $87 per metric ton. In 1996, No. 1 heavy melting steel scrap averaged about $130 per metric ton.

The price of nickel-bearing stainless steel eked out a small gain, averaging $609 per metric ton against $592 per ton in 1998. But, across the market, material was flowing – and it is a poor manager who can’t at least pay the bills if product is moving through the yard, most scrap veterans concur.

A BETTER VIEW

From Texas to the Northeast, 2000 looks like it might be a better year than scrap dealers have seen in a while. The proprietors of Brock Steel Co., Lamesa, Texas, are J.D. Brock, Jr. and Steve Brock. “My customers want more,” Steve notes. Brock is a third-generation company in business since 1942 at the same West Texas location between Lubbock and Big Spring where it was founded by J.D. Brock, Sr.

“I can move all the material I can get,” Steve continues, “but it doesn’t seem to be moving the price any.”

Much of the scrap Brock deals with is agricultural, including old plows and other farm equipment. Yet, the fact that material is moving is a good sign. They sell mainly to three mini-mills in the area.

Things have not been quite as bright in the new agricultural equipment market. Some of the major producers, like John Deere and Case Corp., had all but stopped production in the agricultural segment. “Moving material was not the problem. The problem was generation of industrial scrap,” says Marty Davis of the region in which he operates. Davis, president of Midland-Davis, Moline, Ill., says the farm equipment market has been depressed for some time, and that certainly hit Midland-Davis. Yet Davis is somewhat optimistic.“It does appear that the market has bottomed out. There is light at the end of the tunnel,” he says. “I think the worst is over.” Indeed, Deere has come back from some plant shutdowns and actually has some shifts working overtime. Most of Davis’s sales of process scrap do not go into the agricultural equipment markets, though; the material goes to mills and foundries.

Here, Davis is optimistic. “The mini-mill and foundry business was better than it was in the second half of 1998,” he says with some relief. “We’re able to place material that we purchase.”

As with many locations, 1998 was a good news/bad news story in Moline. “The good news was we were busy with 4,500 tons per month coming in under contract,” Davis says. “The bad news was that we could sell only 2,000 tons.” As a result, inventories skyrocketed, and prices took a nosedive. The process was repeated at many other recycling operations around the country.

But the new millenium seems to have brought some relief. In Cleveland, Stuart Simms of Parkwood Iron & Metal says flow into his yard is “decent.” He has seen plenty of plate and structural orders. Flame-cut orders are in shorter supply.

“Flow into the yard is decent,” Simms says. “And I can move material to appropriate mills.”

USGS figures show that manufacturers of pig iron, raw steel and steel castings accounted for about three-fourths of the domestic steel industry, using scrap together with pig iron to produce steel products for the construction, transportation, oil and gas, machinery, container, appliance and various other consumer industries. The ferrous castings industry consumed most of the remainder to produce cast iron and steel products, such as motor blocks, pipe and machinery parts.

“Material in this area is flowing, but not freely,” says Charles Medico, president of Louis Cohen & Son, Wilkes-Barre, Pa. He puts the rate at “about half-throttle.”

He says prices are at the point where the street price is sufficient to keep material moving, but not enough to clean up everything in sight. “If the price goes up, the flow will increase,” he says. In addition to the scrap operation, the company is involved in defense manufacturing, so it has an internal source of supply, as well.

On the mill side, Medico sees good demand and feels the flow is sufficient to meet the mills’ needs.

Likewise, Southeastern mill buyers report good flow. With the winter gone and everyone in the grip of mild weather, flow remains steady. A $4 to $5 drop in factory bundles did not affect local markets too much since shredded scrap is more popular in the region.

However, pig iron is available and DRI is plentiful in the area. “Business is good—the steel business is good,” comments one buyer. That is reflected in operating capacity rates in the low 90%-range, as opposed to the mid-80’s a year ago.

Bill Heenan, president of the Steel Recycling Institute, Pittsburgh, says there will be continued demand for scrap. He notes that there has been no breakthrough on DRI. “DRI is still a minor piece of the puzzle,” he says. “Only 4% is coming from material other than scrap. The price of scrap is not good for DRI. A number of companies are re-thinking their offshore DRI operations.”

But there may be changes. Noting that it is one man’s opinion, Heenan continues, “That doesn’t mean that five years from now DRI won’t be 40% of the mix, but I doubt it will be in double-digits.”

With the electric arc furnace (EAF) or mini-mill gobbling up scrap, moving material in and out of the yard is not a major worry at most places. More time is given to wondering if the prices will return to their glory days. Sadly, nobody predicts a return of ferrous scrap to the lofty $130 per ton prices it enjoyed in late 1997 and early 1998. Recently, prices stalled around the $105 mark. After an extended steady price climb up from the $73 per ton trough of December 1998, prices flat-lined and then dropped back slightly in the first quarter of 2000. While there was a nice jump in January, February’s market took much of that back. In March, the price was off $2 or $3. But material continued to move through the 16,000 car dismantlers and the more than 7,000 scrap processors who represent the North American steel scrap recycling industry.

Recycled scrap consists of approximately 32% home scrap (new re-circulating scrap from current operations), 24% prompt scrap (produced in steel-product manufacturing plants), and 44% obsolete (old) scrap. Raw steel production in 1999 was an estimated 98.6 million tons, nearly the same as in 1998.

Autos remain a large part of the steel scrap industry. The U.S. sends about 12 million vehicles through 200 car shredders. The result is 13 million tons of shredded steel scrap.

In Chicago, things are a bit slower. “Scrap is moving to some extent,” says Frank Cozzi, president of Cozzi Iron & Metal. “Volumes are decent, but they are not what we would like them to be.” He figures inflow is off 10 to 12%, and places the shortfall of demand on imported scrap. Mills have been able to access the European and eastern European supply and the imports continue to hurt his business.

EXPORTS DROP

The European market has been so depressed over the past 18 months that the freight rate on bulk carrying ships going westward out of Europe has been significantly lower than on ships going east across the Atlantic. “The result is that mills have been able to buy bargain scrap from Europe for the past 18 months to two years,” Cozzi says.

Cozzi says that the flood is subsiding somewhat. “I think that, to some extent, it is changing,” he continues. “I’m seeing some scrap move off both coasts.”

That would be an improvement over 1999, when USGS reports show that exports of ferrous scrap declined to 5.3 million tons from about 5.5 million tons the previous year. Value of the exports was just over $800 million.

“Material definitely is coming in from Europe,” Medico says. “It is absolutely competing with domestic scrap. I don’t know why mills are so anxious to buy off-shore,” he wonders.

An increase in shipments through New Orleans was anticipated, picking up in volume from a drop-off in early March. While the flow of European material is somewhat newsworthy, long-term it is Canada that remains the key source of imported steel scrap. Canada supplies more than three-fourths of the material coming into the U.S. The United Kingdom is a distant second at 8%, followed by Venezuela and Mexico, each at 5%.

“If you exclude Canada, the situation isn’t so bad,” Heenan maintains. He traces the flow of material used to build a commonplace item like appliances. Steel coils may go into Windsor, Ontario, and that technically is an export. When scrap comes back over the border, it looks like an import. “As we get more electric furnaces, there is more consumption, but it is on both sides of the border,” he points out. “There is less export availability, and it looks like a drop, but it really isn’t.”

In addition to the eastern European market, much of the economic story throughout last year was still tied to reverberations from the 1997 Asian financial crisis. With prices in the doldrums, generation and processing of scrap were put on a back burner, finally improving in early 1999. Prices remained depressed until mid-year when, according to USGS, they finally increased in response to a slowly rising trend in steel prices and the addition of scrap to mill inventory.

Heenan maintains that the situation in 1999 was about the same as it was in 1998. “There was more import, less export,” he says, “but we are closing the surplus that has been in place for the past 50 years.”

In Texas, the Brocks have seen little boost from the Mexican markets. “Exports won’t be a help to us unless it sucks a lot of material out of the markets farther south. Then the three main mini-mills will be forced to bring their prices up a bit,” Steve Brock says.

“As more electric furnaces gobble up more scrap, there will be less to export to other countries,” Heenan says. In addition, those countries are developing scrap infrastructures of their own and will have a natural proclivity to use domestic scrap before going out onto the world market to buy. For example, five years ago, Japan was a net importer of scrap. Today, it is not.

DOWN THE ROAD

“The price always comes back to the price of No. 1 bundles,” Heenan points out. He is not overly concerned that some other material will come onto the market and compete with scrap in the electric furnace market. “Scrap is a very elastic product,” he points out. If some other product were to come onto the steel scrap market that could be delivered at $100 per ton, the price of scrap would quickly go to a competitive level.

The cost of scrap is not determined by the value of the scrap, Heenan says, but rather what it costs to make hot metal, pig iron. “Year after year scrap will go up and down depending on the world situation. The scrap price will always find its level,” he adds.

“I don’t see anything that will drive the market up or down dramatically,” says Cozzi. Looking through the summer, he says, “I think the market will remain relatively flat—trading up or down a few dollars.”

“It’s a given that we’re in a market with a strong sideways flow,” Medico says. “If we finish summer without an increase in interest rates, the market should stay the same. I think there is a lot of political pressure to keep interest rates low,” he adds.

Simms also sees the market moving sideways for the foreseeable future. “I don’t see the market being pushed much further down,” he says. “It’ll probably go sideways or up two or three dollars. But I’m not saying this is the bottom, either.” He says that the important factor is that scrap is trading.

But Davis is not sure the market has seen its best price for 2000 yet. Although they are sitting on a stockpile, he says, “We haven’t sold as much scrap as we could have. It’s not that the price today isn’t fair—but I feel prices will go higher as the year goes on. We’re anticipating better prices down the road.”

Davis did sell some surplus into the better January market, then pulled back the next month or two. While he is not trying to time a market peak, he is waiting for some further market strength. He has no “magic number,” though. When he sees the market drop $9 a ton, he waits for it to come back $10. “Then we’ll liquidate,” he concludes. RT

The author is an environmental writer and Recycling Today contributing editor based in Strongsville, Ohio.