Smaller Portions

Even in parts of the country where blizzards and ice storms are few and far between, most scrap recyclers describe the winter of 2012-2013 as having been a tough one.

Buyers and yard managers looking back at the winter are almost in unison saying they are glad it is over and they hope spring brings with it more scale traffic and industrial generation.

A prevailing sentiment, as well, is that the considerable amount of shredding and processing capacity that was put in place in the first seven or eight years of the new millennium has brought about fierce competition that continues to squeeze margins and diminish operating schedules.

A Better Era
For many buyers of ferrous scrap, 2008 remains a critical dividing line between a market when scrap was flowing in to feed shredders and shears to the low-volume market of today.

By that yardstick, there is little question that flows so far in 2013 remain disappointing compared with generation during the years from 2001 to 2007, when construction, demolition and automotive production were booming and scrap generation was healthy.

“Since the fall of 2008, our average daily buy is off more than 50 percent,” says one ferrous scrap buyer in the Southeast.

Post-2008, the subsequent down cycle was initially severe and also has been long-lasting, causing both short-term and long-term pain for the ferrous scrap sector.

Experienced scrap recyclers are all too familiar with managing through a sharp down cycle and many also have been through extended troughs in the business cycle.

A difficult part of managing through the past few years, many of these recyclers say, has been the existence of a much more crowded scrap recycling sector, exemplified in one key way by the considerable number of auto shredders installed in the past several years.

Going by Recycling Today’s count of auto shredders in the United States, the number of shredders in operation soared from 191 in 2004 to 290 by 2011.

Long-time owners of shredding plants were not overjoyed to have the additional competition even in 2006 or 2007, when flows were healthy. During the five-year stretch from 2008 to 2013, these same operators say they are experiencing reduced flows, shorter operating hours, compressed margins and a struggle to maintain profitability.

Many of the owners of these newer shredders offer a different perspective. From their point of view, owning a shredder has allowed them to get through tough times and increase scrap flows by competing to process auto bodies, white goods and other types of scrap. As well, it may have allowed them to offer a shredded ferrous scrap product that is in far greater demand from both domestic still mills and export brokers compared with baled scrap.

Depending on the size and price of the shredders they purchased, some shredder operators say they have achieved the return on investment they wanted—even in an economic down cycle.

However, their ability to compete in these new ways has almost certainly been in direct conflict with the ability of owners of larger, established auto shredding plants to maintain adequate flows to feed their plants in the past five years.

No Great Shakes
Heading out of what was almost universally considered to be a gloomy winter, a ferrous scrap buyer in the eastern U.S. says in early April that “hope springs eternal” for flows to increase in the spring and summer.

That sentiment is expressed by several recyclers, especially in regions where construction and demolition activity hibernates in the winter, but economic indicators and forecasts are not necessarily pointing to that scenario.

Even before actions stemming from the sequester-related federal budget cuts took effect, economic and construction industry forecasters anticipated slow growth in the construction sector at best.

However, positive signs that the long depressed residential construction sector may finally be on the rebound remains. “Housing starts should reach nearly 950,000 units, with single-family construction near 700,000 starts during 2013,” says Ed Sullivan, chief economist of the Portland Cement Association, Skokie, Ill. “We see starts hitting the 1 million mark in 2014 or 2015,” he adds.

If this rebound in the residential sector includes a demand for urban living among young people and apartment dwellers in general, it could bode well for the demolition sector. (See the Demolition Industry Report “Back and Forth,” starting on page 70 of this issue, for more information on the construction and demolition sectors.)

Ferrous scrap buyers seem to be keeping their expectations modest in terms of spring and summer 2013 generation levels, with one national accounts manager saying his customer base includes a blend of manufacturers, some of whom are generating a little more scrap than last year, but many others whose generation is flat or even declining relative to 2012.

The automotive sector has rebounded more convincingly from the recession of 2008 and 2009. Car dealers in the United States continue to work their way back from selling just 10.4 million cars and light trucks in 2009, a figure significantly lower than the 15 million to 17 million units that were sold most of the previous years.

According to an early April report on Market Watch, www.MarketWatch.com, “Car-shopping website Edmunds.com has raised its full-year U.S. car sales forecast to 15.5 million vehicles, a level the industry hasn’t seen since 2007, as car shoppers remain resilient in the face of fiscal issues in the U.S. and uncertainty in Europe.”

As noted in the April Ferrous department of Recycling Today, another automotive industry analyst sees the upward trend continuing through 2016. Mike Wall of IHS Global Solutions, Englewood, Colo., said in a speech in March that new passenger vehicle sales were continuing to climb steadily, heading toward 17.5 million units in 2016.

The related increases in scrap generation and steel output resulting from a potential 68 percent increase in automotive production over seven years will not be felt the same in all regions of the country, according to Wall.

Whereas in 2000, 25 percent of North America’s vehicles were made south of Ohio, by 2016 that figure will have climbed to 50 percent. Thus, scrap recyclers serving auto plants in the Great Lakes region may not experience the same increase in stamping plant scrap as recyclers near the newer southern assembly plants.

Markets Near and Far
Ferrous scrap pricing has fluctuated in early 2013, with tight supply being met by demand that ebbs and flows both domestically and on the export side.

In the United States, flat-rolled mills serving the automotive industry have rebounded along with that sector, while mills making rebar and structural steel generally continue to operate at lower capacity rates.

The overall statistical portrait provided by the American Iron and Steel Institute (AISI), Washington, D.C., includes a 75.7 percent steel mill capability utilization (capacity) rate year-to-date through the first three months of 2013. Unfortunately, production overall in 2013 has not been increasing over 2012 levels.

“Adjusted year-to-date production through March 30, 2013, was 23.58 million tons, at a capability utilization rate of 75.7 percent,” notes the AISI. “That is a 7.7 percent decrease from the 25.55 million tons during the same period last year, when the capability utilization rate was 79.3 percent, the association adds.

As with other secondary commodities, export markets have helped provide additional demand for ferrous scrap even when the U.S. economy was at its lowest point.

Turkey, whose steel mills provide the beams and shapes that form the spine of a major building boom in the Persian Gulf region, is the largest single import market for ferrous scrap leaving other nations.

Serhat Babac of Turkey-based information company SteelOrbis, speaking to attendees at the Middle East Metals Recycling Conference in Dubai in early March of this year, said mills in Turkey likely will continue to need scrap from North America in 2013.

In part, scrap sent from North America is making up for the diminishing amounts leaving the former Soviet Union (where scrap exports are tightly controlled) and the European Union, whose economy is generating scrap at even lower levels than North America’s.

Babac reported that as likely, especially since SteelOrbis foresees that the Black Sea region “will decline even more” as a scrap source, owing to a combination of a depleted scrap reservoir and export tariffs that will tighten supplies from Russia and its neighbors.

Globally, steel output is up slightly in the first two months of 2013 compared with one year ago, though an imbalance exists between China and most of the rest of the world.

While China produced 12 million more metric tons of steel in the first two months of 2013 compared with the same period in 2012, production in the rest of the world actually decreased.

According to figures compiled and reported by the Brussels-based World Steel Association, even as China experienced its increase (jumping from 113.4 million metric tons to 125.4 million), steel output in the rest of the world declined from nearly 133 million metric tons in the first two months of 2012 to just 127.6 million metric tons in 2013.

A summary of February output sent by the World Steel Association in late March noted, “Turkey’s crude steel production for February 2013 was 2.7 million metric tons, a decrease of 3.9 percent compared to February 2012.

As well, “The U.S. produced 6.7 million metric tons of crude steel in February 2013, down by 11.8 percent [compared with] February 2012.”

For scrap recyclers in North America seeking both greater supply and strong regional demand from mills to help lift pricing, that February statistic for domestic steel production unfortunately sent a signal that markets are far from ready to return to full strength.

The author is editor of Recycling Today and can be contacted at btaylor@gie.net.