Hold the champagne

Champagne may have flowed at New Year’s Eve parties throughout North America, but global commodity markets in the new year have not likely put scrap dealers in the mood to prolong the celebration.

Although ferrous scrap prices stabilized at the very end of 2014 and even rose a few dollars per ton in January 2015, the price stability occurred amidst a swirling commodity market that witnessed copper prices falling in mid-January toward price levels not seen since 2008.

In the short term, pricing data collected by the Raw Materials Data Aggregation Service (RMDAS) of MSA Inc., Pittsburgh, and by American Metal Market (AMM) showed ferrous scrap traders were able to receive a few dollars per ton more for their shipments in late December and early January than they had in previous months.

The early January buying period as measured by the AMM Midwest Index recorded ferrous scrap price hikes of from 1 to 2.4 percent, depending on the grade. Prompt scrap (the AMM No. 1 busheling grade) posted the largest gains, rising more than $8 per ton to slightly less than $362.

Most buyers and sellers of ferrous scrap, however, do not see the slight January gains as indicative of an emerging trend. While steel mills in the U.S. are producing at similar rates to what they have been in the past two years, export buying interest remains muted.

If scrap processors are to receive higher bids for their products in the near future, it may be tied to the unfortunate market condition of limited supply rather than surging demand.
 

Two factors pinching supply are severe winter weather throughout much of North America and plummeting scale prices for nonferrous scrap (and copper-bearing scrap in particular).

While statistically America’s construction sector is on slightly better footing heading into 2015 than it has been in most of the preceding six years, the holiday season combined with severe cold resulted in scaled-back activity in late 2014 and the first two weeks of the new year.

Combined with traditional holiday season manufacturing plant downtime related to maintenance schedules in the automotive and other major sectors, scrap flows were far from bountiful as calendars turned to January.

Just two weeks into the 2015, scrap processors are expressing greater concern with the falling price of copper. “Falling copper prices are never good for scrap flows,” says one Midwest-based trader. “A lot of generators and a lot of smaller dealers will hold on to all of their scrap when they perceive that copper prices are falling and will continue to fall.”

The state of global commodity markets is beyond the control of scrap processors, but that doesn’t mean they aren’t tracking the markets with concern.

“In 2008 when markets plunged, copper hit a low of around $1.80 per pound,” recalls one trader, who is not convinced that prices for the red metal will fall below $1 per pound, where they were before China’s rapid urbanization began.

In the steel sector, iron ore prices decreased by 47 percent in 2014, perhaps making ferrous scrap look better by comparison. Using RMDAS shredded scrap transaction data as a yardstick, the price of shredded scrap fell 22.2 percent from January 2014 to December 2014.

As for what’s ahead in 2015, a market analysis by MetalMiner (www.agmetalminer.com) predicts flatness for global steel prices. “Prices are showing some resilience, but they are not showing significant strength either,” says MetalMiner’s Taras Berezowsky in a Dec. 30, 2014, post. “We don’t see steel prices significantly rising in 2015 while commodity prices remain low.”

The first 10 days of the year hardly present a suitable sample size, but steelmakers in the U.S. have started out the new year on a note of optimism, according to data published by the American Iron and Steel Institute (AISI), Washington.

In the week ending Jan. 10, 2015, domestic steel production was 1.9 million tons, with mills running at a capacity rate of 79 percent. That compares with production of 1.82 million tons and a capacity rate of 75.8 percent during the comparable week in 2014.

Steelmaking and scrap purchasing markets overseas remain important variables heading into 2015. Data gathered for the first nine months of 2014 point to a third consecutive year of reduced overseas purchases of U.S. ferrous scrap.

With purchases from historically large buyer Turkey plunging by nearly 33 percent, the overall volume of shipments of U.S. ferrous scrap to overseas destinations dropped by 2.8 million metric tons (or more than 19 percent) in the first three quarters of 2014 compared with 2013, according to the United States Geological Survey.

Encouragingly, November 2014 Commerce Department data analyzed by AMM showed 9 percent growth in ferrous scrap exports compared with November 2013, with buyers in Egypt and India particularly active in late 2014.

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 detailed methodology is available at www.amm.com/pricing/methodology.html. 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.html.