Quiet trade routes

A tepid export market in early June kept demand for shredded ferrous scrap and No. 1 heavy melting scrap (HMS) in check, widening the price gap between those two grades and prime grades heading into the summer.

Surveyed pricing for the early June buying period published by American Metal Market (AMM) revealed falling export prices on both coasts, with Pacific Coast prices falling by some $35 per ton.

AMM’s Midwest Index prices essentially were stable for shred and No. 1 HMS, but its No. 1 busheling grade rose by $8 per ton in June. Historically, prime grades get snapped up in May and June in anticipation of slower automotive stamping production in the summer months, when automakers take downtime to prepare for new model changeovers at assembly plants.

The export market and global trading overall were the predominant topics at the Bureau of International Recycling (BIR) World Recycling Convention & Exhibition in late May in Barcelona, Spain. Between China’s escalating scrap restrictions and the merry-go-round of tariffs being enacted, global traders who attend the conference had much to talk about.

Although most of the world’s largest economies have fared well in 2017 and the first half of 2018, several panelists at the BIR’s Ferrous Division meeting pointed to potential trouble spots looming in the near-term future.

Ferrous Division Interim President Tom Bird of Hong Kong-based Chiho Environmental Group said trade disputes are heading down a path that could lead to $3 trillion worth of global trade being “wiped out” by 2021, a notion that should concern recyclers with distant markets.

He also pointed to economic hiccups in Turkey as being “of concern” because that nation “is the biggest market for our ferrous scrap.”

“Tariffs are like cockroaches; there’s never just one.” – Jason Schenker, Prestige Economics

In the first five months of 2018, Ferrous Division member George Adams of California-based SA Recycling said ferrous scrap pricing and demand have been encouraging, “premised on healthy domestic demand for new steel [and initial] strength in the scrap steel export markets, although that strength has since faded.”

Adams referred to Taiwanese demand for U.S. scrap as a “roller-coaster ride” so far in 2018, while the South Korean market has been “soft” and China is showing a greater ability to absorb its own ferrous scrap rather than rely on imports.

Adams and Frank Heukeshoven of Germany-based TSR Recycling GmbH pointed to economic concerns in Turkey, with Adams saying, “New steel exports from Turkey decreased in the month of March by more than 15 percent, creating less demand for U.S. scrap.” Turkish steelmakers have been “hit hard” by the Section 232 tariffs imposed by the Trump administration, he added.

Heukeshoven referred to Turkey as “not doing well,” adding, “Sales [of ferrous scrap to Turkey] really slowed down in April [and] prices paid by the Turks are getting lower.” He said the “main drivers” for the gloomy conditions are “slow Turkish domestic rebar sales and the negative effect on [steel] export sales” caused by the U.S. tariff.

Guest speaker Jason Schenker of Texas-based Prestige Economics pointed to damage from Trump administration tariffs as having the potential to spread far beyond Turkey. He expressed curiosity that the Federal Reserve and the International Monetary Fund (IMF) have acknowledged this potential damage but neither has revised its 2018 or 2019 gross domestic product (GDP) forecasts downward. “Tariffs are like cockroaches; there’s never just one,” Schenker warned.

U.S. tariffs on imported steel and aluminum could lead to a short-term improvement in mill capacity rates, he said. Ultimately, however, as basic materials prices rise, many manufacturers could see their businesses erode, causing steel mill output to decline.

China’s ability to export finished and semifinished steel recently has been joined by concerns that the nation is quickly heading toward becoming a net exporter of ferrous scrap.

The BIR Shredder Committee’s census of the world’s auto shredding plants shows that recyclers and steel producers in China have ramped up their ferrous scrap processing capabilities.

Shredder Committee Chair Scott Newell III of Texas-based Newell Recycling Equipment provided an update of the BIR’s World Shredder List, indicating China is the world’s fast-emerging shredder market. He said the BIR knew of just 70 shredding plants in China in 2017, but now 200 either are operating or are in the installment phase. Newell said part of this is a function of the Chinese government incentivizing the nation’s steel industry “to use more scrap.”

In a discussion on international trade at the BIR convention, one panelist said the Chinese government intends to boost its recycling infrastructure largely for internal domestic consumption. Ranjit Baxi of J&H Sales International, London, said, “China wants to employ thousands of people and save millions in foreign exchange” by maximizing its recycling of metal, paper and plastic.

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.