Never mind the billets

Throughout a ferrous scrap price slump in late 2015 and early 2016, low-cost Chinese steel—including billets being shipped into Turkey that slowed down electric arc furnace (EAF) melt shop activity there—shouldered much of the blame.

Likewise, actions in China are being pointed to as reasons behind the temporary ferrous scrap price spike that gave the market a boost in April and May 2016.

At the organization’s 2016 World Recycling Convention in Berlin in late May, the president of the Bureau of International Recycling (BIR) Ferrous Division asked whether the spring price spike was boosted by investors in Shanghai.

William Schmiedel of Sims Metal Management, New York, said that April 21, 2016, contracts for 220 million tons of steel rebar were traded on the Shanghai Futures Exchange (SHFE) in one day—more than the entire annual production of rebar in China.

As has long been the case on the nonferrous side of the scrap recycling business, Schmiedel commented that speculation may now be “something we will have to contend with” in the ferrous scrap sector.

Calling the spring price spike, which followed a multimonth slump, a rollercoaster is “an understatement,” Schmiedel said.

The steel and scrap price slump, largely caused by exported low-priced Chinese billet shipped to scrap importers such as Turkey, eventually drove scrap prices into a range that caused supply shortages, he added. The resulting ferrous scrap price increase in March, Schmiedel said, was an indication that when prices are below $200, “The basic [scrap] collection system of our industry breaks down.”

Ferrous Division board member Tom Bird of Mettalis Recycling Ltd. in the United Kingdom pointed to temporary steel output cuts in Tianjin, China, as another reason for the spring price spike. Civic officials in that city asked steelmakers throughout Tianjin to idle their furnaces in the weeks leading up to a local flower festival held in April and May.

The resulting “reduction in billet for a while” helped mills in places like Turkey “turn back to scrap,” Bird said. Those mills are back online, however, and “market dynamics have changed again,” he remarked.

Economist Jason Schenker of Prestige Economics, Austin, Texas, provided a global economic forecast that was not greatly encouraging for the scrap or steel industries.

Schenker said the economic indicators he looks at have convinced him that both China and the U.S. are in manufacturing recessions. In China’s case, the company’s lengthening string of weak monthly purchasing managers index figures points to “a worsening recession,” he said.

In the United States, Schenker said the automotive sector is the only major manufacturing sector that currently has strong output. The construction sector, meanwhile, exhibits marginal activity, and the energy sector is in a severe situation that includes considerable numbers of loans likely to go unpaid.

To the delegates assembled in Berlin, Schenker said some of the EU’s economic indicators have been strong in nine out of the last 10 months, perhaps signaling some encouragement for the continent’s long beleaguered economy. But considering the energy sector woes in particular, Schenker added, “If you think everything is great in the U.S. [economy], I have bad news—it’s not.”

At the Berlin gathering of recyclers and traders, which started in late May and continued into early June, delegates expressed concerns that per-ton prices for ferrous scrap would plunge as the June buying period got underway.

Speculation may now be “something we will have to contend with” in the ferrous scrap sector, according to William Schmiedel of Sims Metal Management.

Instead, pricing tracked by American Metal Market (AMM) during the U.S. buying period in the first 10 days of June found weakness in some grades and regions but stability in others.

Prompt grades, reflected in the AMM Midwest Index No. 1 busheling figure for June, remained in the $275-per-ton range for the second straight month, though both shredded scrap and No. 1 heavy melting steel (HMS) fell by from $19 to $26 per ton in the same region.

The weak export figures on the West Coast could be seen as a reflection of the weakness of the global EAF steelmaking market as portrayed in the seventh edition of the BIR’s “World Steel Recycling in Figures” publication, which was distributed to BIR delegates at the Berlin convention.

The newest version of the 42-page booklet, which offers data from the five-year period of 2011-2015, includes additional information about the scrap and steel markets in Turkey, Ukraine and Hong Kong.

Rolf Willeke, statistics advisor to the BIR Ferrous Division, says 2015 witnessed a decrease in ferrous scrap use in several major nations and regions, including the United States (-8.9 percent), Turkey (-7.5 percent), China (-4.8 percent), South Korea (-8.3 percent) and Russia (-10.4 percent).

Additional RMDAS (Raw Material Data Aggregation Service) pricing from Pittsburgh-based Management Science Associates (MSA) is available on the Recycling Today website at www.RecyclingToday.com/RMDAS.

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.