No Thaw Yet

As March turned to April, ferrous scrap recyclers hoping for renewed scrap generation or a heating up of bidding for scrap were disappointed with activity in the first half of the month.

“Scrap flows have been tight up until now—worse than in previous years,” says a scrap processor in the eastern U.S. “With prices falling in April, I don’t expect flows to improve much even with the spring season.”

A ferrous scrap buyer in the Southeast paints a similar picture. “Scrap is extremely tight,” he comments. “Spring is not bringing forth additional scrap as we had hoped,” he says as of mid-April. “Obsolete scrap is in very short supply.”

Making matters more difficult, he says, is an increasing number of shredding plants in his operating region. “Factoring in the new shredding capacity that has come online since the fall of 2008, our average daily buy is off over 50 percent compared to five years ago.”

The increased shredder population not only bites into flows but into profitability as well, he contends. “Add to that the margin squeeze we are in because of that new competition, and we are finding it very difficult to turn a profit.”

Another ferrous scrap buyer with accounts spread throughout the southeastern and southwestern U.S. reports mixed results. “As far as the spring, the best description is mixed,” he comments. “There are some [generators] who are steady but not significantly ahead of average. There are other manufacturers who are at slightly below-average production and not expecting much improvement in the months ahead.”

The regions he serves with an active energy sector seem to be faring a bit better. “Oil and gas customers are among the exceptions, as they are quite busy,” he says.

Another southern recycler, this one in the Carolinas, also is concerned about scrap flows. “Obsolete scrap flow is just about obsolete,” he says. “It is very slow on the retail side, and we are starting to see a slow decline on the industrial side right now also,” he reported as of mid-April.

As is typically the case in such a market, his company is going farther afield for scrap. “We are managing to stay busy with a lot more work and going out farther to get it. Margins are slimmer also because of the competition and everybody fighting for any tons they can get their hands on right now,” he continues. “I’m glad I don’t own a shredder in this part of the country,” he adds, hinting that the pressure to keep a shredder fed is considerable.

North of the Mason-Dixon line, an Ohio ferrous scrap buyer chimes in with a similar report, but also a little bit of optimism as the Midwest tries to leave winter behind. “Scrap flow has been very slow—very,” he reports in mid-April. “We see with the weather getting better that flows are picking up, so I’m very encouraged.”

Early April pricing, unfortunately for processors, reflects a demand scenario that was as lackluster as the supply picture. American Metal Market (AMM) reports in April that export buying off the East Coast was “at a standstill” as “Turkish mill buyers failed to return to the docks,” even after ferrous prices fell by some $20 per ton.

Pacific Coast bulk exporters did have a few orders to fill, according to AMM, with one exporter sending a bulk load to South Korea and a second vessel to Malaysia. Each of those buyers reportedly paid more than $400 per ton for mixed loads of No. 1 and No. 2 heavy melting scrap (HMS).

AMM’s Midwest Ferrous Scrap Index pricing, reflecting domestic steel mill transactions, fell by about $20 per ton for No. 1 busheling, shredded scrap and No. 1 HMS.

Scrap shippers contacted by AMM described domestic mill demand as off by from 10 to 20 percent in early April compared with March. Those same shippers looked at soft export demand (caused in part by a strengthening U.S. dollar) and concluded that prices were not likely to improve because of the lack of bidding between export brokers and domestic mill buyers.

As ferrous scrap recyclers and steel mill buyers were negotiating in early April, figures from the American Iron and Steel Institute (AISI), Washington, D.C., showed that domestic steel output rose slightly in the first full week of April.

According to AISI, for the week ending April 6, 2013, domestic raw steel production was nearly 1.86 million net tons, representing a capability utilization (capacity) rate of 77.6 percent. That represented an increase of 2.1 percent from output in the previous week (ending March 30, 2013), when production was 1.82 million tons and the capacity rate was 75.9 percent.

While this ideally represents a positive trend, the 1.86 million tons produced the first full week of April 2013 are less than the 2.01 million net tons made in the comparable week (ending April 6) in 2012. That drop represents a 7.7 percent decrease year on year and a capacity rate drop from 80.9 percent in 2012 to 77.6 percent this year.

*FOB New York, in metric tons; **FOB Los Angeles, in metric tons. The American Metal Market (AMM) Midwest Ferrous Scrap Index and 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 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 methodologies are available at www.amm.com/pricing/methodology.html. The grades are based on the Institute of Scrap Recycling Inc. (ISRI) specifications from 2012.