Hints of summer trouble

Buyers of ferrous scrap spent the first few days in July making offers very similar to prices that had held steady throughout the spring—and paid even more for prime grades. However, for reasons not entirely clear, mill buyers returned from the July 4 holiday attempting to buy at lower prices.

By July 10, when American Metal Market (AMM) published its Midwest index for July, the prime No. 1 busheling grade had risen by nearly $10, while shredded scrap and No. 1 heavy melting steel (HMS) had each lost about $1 per ton in value.

A scrap recycler in the Great Lakes region, however, tells Recycling Today that the bids made by mills began to skew lower in the second half of the July buying period.

“Before July 4 and after July 4, things were very different,” he says. Mills essentially “stopped buying” when they learned July prices were not significantly lower, he adds.

The reasons steel mills expected lower ferrous scrap prices are not entirely clear. Steel output in the United States, though it dipped slightly in mid-June, has been on an upward trend this year.

One source of trouble could be the export market, where processors rely on sustained buying from Turkey (on the East Coast) and Taiwan and South Korea (on the West Coast) to help create sufficient demand.

Re-elected Turkish President Recep Erdogan is consolidating his power for the long term, in the opinions of many observers, and in the process is enacting policies and making appointments of concern to economic analysts.

“Everyone is experiencing the same problems: Railcars are difficult to get, and trucking is getting more difficult and expensive.” – Great Lakes region recycler

In early July, Erdogan replaced an established and experienced chief economic advisor with his son-in-law. The appointment drew a hostile reaction from investors and currency traders, sending both the nation’s stock market index and its currency value sharply downward.

The negative sentiment in Turkey could be one reason mills returned from the July 4 holiday feeling they had the upper hand. If Turkey’s economy hits a rough patch, processors on the East Coast quickly will turn toward domestic mills if they need to sell ferrous scrap.

Not long after the political news from Turkey, AMM reported Turkish mills were increasing their scrap buying from domestic sources and from Russia. If the Turkish lira continues to slide against the dollar, it could further disrupt Turkey’s purchasing habits in the United States.

The first week of July brought positive signals on that front, according to figures collected and distributed by the Washington-based American Iron and Steel Institute (AISI).

In the week ending July 7, 2018, steel output in the U.S. was 1.79 million tons, with mills operating at a 76.4 percent capacity rate. That represents a 3.4 percent gain over the 1.73 million tons of output in the comparable week one year earlier.

The figure for the first week of July 2018 also represents a 0.6 percent gain in output compared with the prior week. That regaining of momentum is good news compared with what was happening in mid-June. In the second week of June, steel output declined compared with the previous week, despite the protections offered to the U.S. steel industry by the Trump administration.

Year to date through July 7, steel output in the U.S. stood at 47.9 million tons, with mills operating at a 76.3 percent capacity rate. That is an increase of 2.9 percent from the 46.6 million tons produced in the same time frame in 2017, when mills operated at an average 74.4 percent capacity rate.

The AISI also reports that steel being produced in the U.S. is finding homes readily, based on May 2018 monthly figures.

In May, U.S. mills shipped slightly more than 8 million tons of steel, a 3.3 percent increase from the 7.8 million tons they shipped in April 2018. The figure also represents a 5.2 percent increase in volume compared with May 2017 shipments.

While a healthy domestic steel industry is encouraging for the ferrous scrap sector, recyclers remain challenged in actually transporting their scrap to its mill destinations.

The recycler based in the Great Lakes region says conditions in the trucking and rail sectors have not improved in 2018, with equipment and labor being in short supply.

“Everyone is experiencing the same problems: Railcars are difficult to get, and trucking is getting more difficult and expensive,” he states.

Citing one example, the recycler says shipping scrap from his metropolitan market to another that is less than 200 miles away “used to cost about $400; now its $750 or $800.”

He says he sees little hope of relief on the trucking labor shortage front, saying, “To find a truck driver right now, he has to be working somewhere else and be unhappy. You have to pry them away—there aren’t any sitting around unemployed.”

The American Metal Market (AMM) Midwest Ferrous Scrap Index is calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The AMM Scrap Index includes material that will be delivered within 30 days to the mill. Spot business included after the 10th of the month will not be included. The AMM Ferrous Scrap Export Indices are calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The detailed methodology is available at www.amm.com/pricing/methodology. *FOB New York, in metric tons; **FOB Los Angeles, in metric tons.