Clouds likely to linger

Speakers at the Ferrous Spotlight session at the Institute of Scrap Recycling Industries Inc. (ISRI) 2015 Convention & Exposition in Vancouver, British Columbia, in April tried to find reasons for future optimism, but none was willing to predict anything but a lingering low-price environment for the remainder of the first half of 2015.

Pricing issued by MSA Inc., Pittsburgh, in its RMDAS (Raw Material Data Aggregation Service) April 20 and by American Metal Market (AMM) for the early May buying period seemed to confirm that outlook, as most ferrous scrap prices gained a few dollars in value but stayed in the $230-to-$260 per ton range.

Befitting its status as a grade that continues to hit the market even when demand declines, the No. 1 busheling prime grade tracked by AMM lost $1 in value in May, declining to $243 per ton after trading at $244 per ton in April.

Other grades, as measured by AMM’s Midwest indices and its export indices, gained value in May compared with April (or remained flat in the case of West Coast exports).

In an encouraging sign for eastern U.S. recyclers, the East Coast export index was one of the biggest risers in May, gaining nearly $12 per ton in value. The stuck-in-neutral West Coast pricing may reflect a quiet buying market in Asia and dissatisfaction from buyers and sellers trying to move scrap through clogged Pacific Coast ports.

Presenters at the ISRI Ferrous Spotlight session said history has shown that an up cycle eventually will follow the current downturn.
 

“This is a cyclical business, and it’s in a downturn; [but] we’ve always gotten through these times,” said Jim Wiseman of Smart Recycling Management, Nicholasville, Kentucky.

He said domestic steel mill operating rates are around 70 percent even while, globally, iron ore mining activity keeps growing to feed Asia’s steel industry. “That has depressing [price] effects throughout the ferrous supply chain.”

Panelist Michael Coslov, former CEO of Pennsylvania-based Tube City IMS, expressed confidence in the ability of family businesses to whether downturns such as the current one. “The core of this business is still the independent scrap dealer,” he stated. “I see them surviving.”

In a low-price environment, Coslov said, scrap processors have few options to cut costs, as they usually do not employ extra people and already run efficient machinery. “The only way to survive, I submit, is for the owner [to pay himself less].”

Ferrous scrap pricing continues to be based on supply and demand, Coslov said, but the priorities beyond that are more suitable for independent or family owners than for public companies. “Take care of the customer, take care of the employees and the equipment and then take care of the shareholders last. If you take care of the shareholders first, you’re going to be in trouble,” he commented.

Coslov said he does not see this down cycle lasting much longer, remarking that the “housing hangover is nearly cured” after about eight years. He said if he was in the scrap business currently, he would set aside 10 percent of his inventory and wait for the price to rise. “I see it turning around.”

Panelist Jason Schenker of Prestige Economics, Austin, Texas, expressed a similar sentiment regarding pricing in the near future. “I think things will go up from here,” he said. “Global [monetary] policies and where we’re going points that way,” Schenker said, though he added that the rebound for ferrous scrap and steel could go slowly.

In a separate session at the ISRI 2015 Convention & Exposition, John Harris of Canada-based Aaristic Services said the role of the NAFTA region in overall global steel production has receded. The region’s 119 million metric tons of steel produced in 2014 was 7.4 percent of the 1.6 billion metric tons produced globally. “That’s it—a tiny percentage,” Harris said.

That circumstance means steelmaking conditions in other parts of the world can greatly affect steel and ferrous scrap pricing in North America, with conditions in Turkey and China being the most prominent. Turkey’s electric arc furnace steelmakers have for a long time driven the ferrous scrap export market in North America, but Harris said the country’s scrap deficit is quickly narrowing.

He also stated that of the 800 million metric tons of steel produced in China in 2014, the nation only consumed 700 million tons of it domestically. “And they have an economy that is struggling,” said Harris, who said he expects to see China keep exporting steel long products and rebar throughout 2015.

Among the nations importing Chinese steel is likely to be the United States. At the Ferrous Spotlight session, Coslov said he does not foresee a repeat of the 2002 tariffs the United States government put in place to slow down the tide of imported steel. The 2002 tariffs, said Coslov, “helped pull us out of that recession. Now, I don’t see anyone who is going to help the steel industry at all—not in Congress or the White House.”

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.