Winter of discontent

After February’s steep plunge in pricing, any expectations for a March rebound in ferrous scrap prices were met with disappointment as mill buyers showed little inclination to pay more for scrap.

As of mid-March, some processors express the idea that conditions are being put in place for at least a slight rebound in April.

Mildly renewed interest from export buyers may help to spur some buying competition. On the supply side, meanwhile, a combination of late winter snow and ice and smaller dealers and salvage yards holding onto scrap may trigger a scarcity alert in the minds of some mill buyers.

February is considered a month to forget by shredder operators and other processors. One Midwestern shredder operator says his February 2015 volume was the lowest he has experienced since some of the “gloomy” months in the first half of 2009.

March was not shaping up to be much better either from a volume standpoint or as measured by pricing.

In its surveyed pricing for the early March mill buying period, American Metal Market (AMM) found a market that managed to get weaker yet even after the dramatic February price plunge.

Mills purchased No. 1 busheling scrap for an average of just $240 per ton in March, down more than $16 from February and down a stunning $122 (33.7 percent) from the January price.

Pricing as measured by the RMDAS (Raw Material Data Aggregation Service) pricing service of MSA Inc., Pittsburgh, covers a buying period that ends on the 20th of each month.

The February price summary from RMDAS portrays the full extent of that month’s severe price drop, with its prompt industrial composite grade losing $99 per ton (27 percent) in value and shredded scrap falling by $85 per ton (24.5 percent) in just 30 days.

In a search for any good news in the current market, a recycler on the Eastern Seaboard commented, “The only improvement in March is the re-emergence of the Indian container market for ferrous scrap, which is helpful.”

The AMM survey of early March scrap bulk export buying also pointed toward the potential return of a slightly stronger export market. Renewed interest from Turkish buyers allowed AMM’s East Coast ferrous export average price to rise by $12 per ton (5.2 percent) in early March.

Such renewed interest was not as widespread on the Pacific Coast, where the average ferrous scrap bulk buying price rose by just 20 cents per ton in March compared with February.

The most recent American steel mill capacity rate statistics do not provide encouragement from the domestic demand viewpoint. According to the American Iron and Steel Institute (AISI), Washington, in the week ending March 7, 2015, domestic steel production was 1.65 million tons at a capacity rate of 69.6 percent.

Those figures are down from production of 1.87 million tons in the comparable week in 2014, when mills were running at a capacity rate of 77.7 percent. The production falloff year against year is an alarming 11.9 percent.

Weekly production also was down, though only slightly, from the previous week that ended Feb. 28, 2015, when output was 1.66 million tons and the capacity rate was 70.1 percent.
 

Year-to-date production through March 7, 2015, was 16.67 million net tons at an average capacity rate of 74.7 percent. That is down 3.4 percent from the 17.24 million tons produced during the same period in 2014, when the capacity rate averaged 77.1 percent.

Foremost among the reasons for the steel industry’s declining melt rates may be the cooling off of the petroleum and natural gas exploration and drilling sector.

Pittsburgh-based U.S. Steel Corp. announced in January 2015 that it was going to idle production and temporarily lay off more than 600 workers at its tubular goods mill in Lorain, Ohio. Those layoffs began to take effect in March.

In its filing of a notice of layoffs with the state of Ohio’s Office of Workforce Development, U.S. Steel Lorain plant Director of Employee Relations Steven T. Bauer states, “This action is a result of a decline in tubular market conditions, which is impacting demand for the plant’s products.”

The United States House representative from the Lorain mill’s district focused on imported steel products as the culprit. Rep. Marcy Kaptur, a Democrat representing Ohio’s Ninth District, stated, “This is exactly why I have fought for so many years against unfair trade practices like the dumping of cheap low-grade foreign steel into our U.S. marketplace.”

These closures follow growth in U.S. steel output relative to January 2014. As measured by the World Steel Association, based in Brussels, steel output in the United States grew 4 percent from January 2014 to January 2015, increasing from 7.32 million tons to 7.55 million tons.

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.