No mood to share the wealth

The late July and early August earnings report season included a series of profitable statements from steelmakers based in the United States. The “we’re in the money” reports, however, did not put mill buyers in a mood to spend more in the early August scrap buying period.

American Metal Market (AMM) surveyed pricing released after the early August buying period showed lower index prices for all major grades—with the steepest drop of $25 per ton experienced by East Coast exporters.

The drop in volumes and bid prices on the East Coast largely can be explained by circumstances in Turkey. The value of the Turkish lira and expectations for the Turkish economy are dropping after questionable decisions by Recip Erdogan, that nation’s president, and increased metals tariffs against Turkey imposed by the Trump administration.

By the second week in August, it may have become clear to mill buyers throughout the U.S. that scrap recyclers in the Northeast would have plenty of shredded and heavy melting steel (HMS) scrap available to serve the domestic market.

The series of quarterly earnings reports from steelmakers, including several electric arc furnace (EAF) operators, demonstrated just as clearly that they are operating at a profit.

In late July, Nucor Corp., Charlotte, North Carolina, reported what it refers to as record-setting second-quarter profits in 2018 and a first half of the year that saw it reap $1 billion in net income.

About one week later, another EAF steelmaker, Fort Wayne, Indiana-based Steel Dynamics Inc. (SDI), reported second-quarter 2018 net sales of $3.1 billion and net income of $362 million. That second figure topped its first quarter net income of $228 million, representing a 59 percent boost in profits.

The nation’s largest integrated steelmaker, Pittsburgh-based United States Steel Corp. (U.S. Steel), also checked in with positive results, reporting an adjusted net earnings figure of $262 million, or $1.46 per share, for the second quarter of 2018. That compares favorably with an adjusted net earnings total of $189 million, or $1.07 per share, for the second quarter of 2017.

In statements accompanying their companies’ earnings reports, CEOs largely failed to mention any impact from the Trump administration tariffs on imported steel.

According to an Aug. 5 article by the New York Times, however, Nucor and U.S. Steel reportedly are exercising a type of veto power on whether other steel buyers and sellers are able to receive exemptions to the 25 percent steel import tariff.

The Commerce Department reportedly has consulted with the two steelmakers, which have “successfully objected to hundreds of requests by American companies that buy foreign steel to exempt themselves from President Trump’s stiff metal tariffs.” The number of objections from the two firms reportedly numbers about 1,600.

The black ink on steelmakers’ ledgers (and their reported White House access) did not translate into generosity from mill buyers in early August. Well aware of the lower interest from overseas buyers, domestic mills seemed to start their bidding with lower figures, which ultimately resulted in declines of roughly $10 to $20 per ton for AMM Midwest Index grades.

Prompt grades, which are exported less often, experienced the smallest per ton drop, while the more commonly exported shredded and HMS grades fell from $15 to $20 per ton.

As of mid-August, mills in the U.S. are operating at nearly 77 percent capacity, according to the Washington-based American Iron and Steel Institute (AISI). That may help keep a little pressure on scrap supplies, but perhaps not enough to negate any sizable drop in overseas buying and steady-to-strong ferrous scrap generation.

On the scrap generation side, Martin Berkowitz of Ventura, California-based Standard Industries says, “Demolition activity is up significantly” in the Southern California region, citing a combination of heavy industrial and commercial tear-down work (preparing for new construction) and government-related work. Unfortunately, additional work in his part of the country has come in the form of “wildfire recovery,” Berkowitz adds.

A recycler in the upper Midwest says the demolition sector has been assisted by relatively stable and healthy ferrous scrap pricing in 2017 and the first half of 2018.

“I think if people have a big project that needs to get done, I don’t think the [current] scrap pricing would stop them from doing [it],” the Midwesterner says of demolition activity. However, scale pricing may be dialed down based on August and September developments.

Mike Marley, who writes for New Jersey-based World Steel Dynamics Inc., says some mill buyers were saying they intended to offer lower prices in September even while making their August bids.

Marley writes in early August that one shredder operator had been dropping scale prices in an attempt to stave off having too much inventory, but auto hulks and other scrap kept arriving at essentially the same pace.

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.