Springing forward

Steady global demand and the expectation of renewed domestic demand (in response to President Donald J. Trump’s 25 percent steel import tariff) helped ferrous scrap values rise in the March 2018 buying period.

The metals industry sat atop the financial and the political news in early March, when Trump called a snap meeting to inform a panel of metals sector executives that he would impose a 25 percent tariff on imported steel and a 10 percent levy on imported aluminum.

In the following days and weeks, several steelmakers responded with announcements pertaining to increased capacity or new projects, including U.S. Steel restarting a blast furnace in Granite City, Illinois; Republic Steel restarting an electric arc furnace (EAF) in Lorain, Ohio; and Nucor Corp. announcing a new EAF “micromill” to be built in Frostproof, Florida.

Should the new tariff help America’s steel mill capacity operating rate rise above the 75 percent level—where it has been drifting for several years—scrap processors will have one more reason to consider bright prospects for the market in the spring and summer of 2018.

In the first quarter, export demand has been considered healthy by many shippers, and recyclers report supply also has been steady, though sometimes muted by difficult winter weather.

“Business has been outstanding; there has been so much volume of scrap,” flatly states one recycler in the Midwest, who also refers to running some equipment on a second shift to keep up.

A scrap processor on the East Coast says, “Our obsolete HMS (heavy melting steel) and P&S (plate and structural) flows have been OK—not great—as we are not seeing much demo scrap in the last few months. Shredder feed has been adequate and steady at our desired margins.”

“We are building this rebar micromill in a great and growing market where demand is strong and there is currently an abundant supply of scrap.” – Nucor Corp. CEO John Ferriola

The East Coast recycler says healthy demand is keeping his scrap moving briskly from purchase to processing to sale. “There is a strong ferrous market from the East Coast mills, supported (dragged kicking and screaming) by the Turkish bulk market and by export container markets.”

By the time mill buyers and sellers had negotiated in the first 10 days of March, the American Metal Market (AMM) Midwest indices showed gains in value, particularly for obsolete grades.

While shredded scrap gained $29 per ton in value, and No. 1 HMS increased by $24 per ton, AMM’s No. 1 busheling grade rose by less than $5 per ton in March. The moves narrowed the price gap between prompt and obsolete shredded scrap to $16 per ton, or 4.4 percent of total value.

Although the March buying period coincided with Trump’s 25 percent tariff announcement, many of the new mill capacity announcements occurred toward the end or just after AMM established its prices. Scrap buying for the Republic Steel restart could begin by the late spring or summer, while the Nucor project will take longer.

The Washington-based American Iron and Steel Institute (AISI) has expressed its approval of aspects of the tariff and as of early March was reporting steel output figures signaling improved operating capacity rate.

In the week ending March 10, 2018, domestic steel output was more than 1.81 million tons, with mills operating at a capacity rate of 77.8 percent. That represents a 5.7 percent rise over output of less than 1.72 million tons in the week ending March 10, 2017, when the rate was 73.6 percent.

Not all the momentum may be positive, however, as production in the week ending March 10, 2018, was down 1.1 percent from the week preceding it, when the capacity rate reached 78.7 percent.

Year to date through March 10, 2018, the nearly 17.2 million tons of steel produced domestically, at a mill capacity rate of 74.8 percent, is down 0.2 percent from the slightly more than 17.2 million tons produced during the same period in 2017, when the mill capacity rate was 74.6 percent.

The steelmakers announcing furnace restarts expressed confidence, however, that the timing is right and that the tariff is creating an opportunity to regain market share from imported products.

“Republic is more than prepared to support market demand that has been previously supplied by imports,” stated Jaime Vigil, president and CEO of Canton, Ohio-based Republic Steel. “We maintained our Lorain (Ohio) facility while it’s been idled, waiting for the opportunity to restart, and it appears that time is finally here.”

In announcing the new Florida EAF plant, Nucor CEO John Ferriola did not mention the tariff but instead cited the ability of Cincinnati-based Nucor subsidiary The David J. Joseph Co. to supply the new mill with feedstock. “We are building this rebar micromill in a great and growing market where demand is strong and there is currently an abundant supply of scrap, a good portion of which is handled by our scrap business, The David J. Joseph Co.,” he said.

The U.S. Steel news release announcing its restart indicates the additional capacity supports anticipated increased demand for steel in the U.S. from the Section 232 tariff.