No real substitute

Some steelmakers are putting capital and renewed effort into producing direct reduced iron (DRI) and other alternative iron units that compete with scrap as feedstock at electric arc furnace (EAF) steel mills.

Determining the potential role of DRI as a replacement for scrap spurred some lively debate at the Spotlight on Ferrous session at the Institute of Scrap Recycling Industries Inc. (ISRI) 2014 Convention & Exposition.

Steel industry veteran John Harris, CEO of Canada-based metals sector information service Aaristic Services Inc., said the DRI being produced in places like St. James Parish, La., by Nucor Corp., is intended to be “a replacement for busheling.”

Thomas Danjczek, past president of the Steel Manufacturers Association, Washington, D.C., said he is not convinced DRI is suitable for the role. “Whoever called [DRI] a scrap substitute should be shot,” stated Danjczek.

Recalling his prior career in the steel industry, Danjczek said DRI and similar iron units “took more energy and took longer” to melt at EAF mills. Their role, he said, was valuable when “metallurgically I needed the chemistry change.”

Rather than being a threat to ferrous scrap, Danjczek said investments in DRI production (which Harris deemed likely with America’s access to additional natural gas reserves) will help the EAF sector compete more strongly with integrated steelmakers.

“I don’t follow the busheling theory,” he stated. “DRI will cause more scrap to be used in the U.S. It will replace hot metal,” Danjczek said.

Harris was unconvinced, saying abundant DRI prompted by “cheap gas and cheap iron ore” would allow some EAF mills to use 100 percent DRI.

In the shorter term in the ferrous scrap market, early April saw a rebound in pricing as domestic mills experienced a slight uptick in production and export buyers also showed renewed exuberance for making purchases.

Data collected by American Metal Market (AMM) led the publication to boost its Ferrous Scrap Export Indices on both the East and West coasts in mid-April. The West Coast Index climbed more incrementally, by $12, while the East Coast Index benefitted from increased demand by soaring $42 from March to April.

Strong Turkish buying in late March and early April were cited as factors in the East Coast increase, as was stubbornly bad winter weather that held supply in check.
 

While established recycling companies continue to decry a fiercely competitive landscape that limits ferrous scrap flows, investments in processing equipment (including shredders) and the startup of new businesses continues.

In the Spotlight on Ferrous discussion, Rich Brady, executive vice president, Southeast, for Fort Wayne, Ind.-based OmniSource, credited “a bunch of great shredder salesmen out there” for ongoing installations of new auto shredders. “The number of installations has increased,” he remarked, adding, “Ultimately, you need to be a low-cost producer.”

Signs pointing toward increased competition continued to emerge at the ISRI 2014 Convention & Exposition, however. A recycler in the Upper Midwest disclosed that while he has traditionally relied on balers and shears to process his ferrous scrap, he is researching newer, smaller shredders as a processing option.

As well, a member of a family that once had a considerable scrap processing presence in the Southeast indicated that his family is taking the initial steps to re-enter the sector.

Regarding the role of steel mill companies as owners of ferrous scrap processing yards, Brady of OmniSource (which is owned by Indiana-based EAF steel producer Steel Dynamics Inc.) said, “It has been an interesting experiment [to] put it mildly.”

Recyclers who gathered at the ISRI Convention gave mixed reviews of the ferrous scrap supply picture heading into mid-April. Most were optimistic that better weather would improve flows, but many remained uncertain whether the construction or demolition sectors would rebound sufficiently in 2014 to prompt additional supply.

It is unclear whether domestic steel mills are preparing for a busier spring and summer construction schedule, judging by weekly figures from the American Iron and Steel Institute (AISI), Washington, D.C.

Steel production in the U.S. during the week ending April 12, 2014, was 1.79 million tons, creating a capacity rate of 74.2 percent. The weekly figure is down by 2.8 percent from the 1.84 million tons produced in the comparable week in 2013. Production for the most recent week, however, was up 1.3 percent from the prior week.

Year to date, 26.63 million tons of steel have been produced in the U.S. at a mill capacity rate of 76.1 percent. That figure is down by 0.8 percent from the 26.85 million tons produced through April 12, 2013.

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.