The Return of Volatility

After more than half a year of relatively smooth waters, tough times returned to the ferrous scrap market in late May and early June in the form of price drops in the $50-to-$65 range.

U.S. steel mills buying on the spot market in late May and early June paid up to $65 less per ton for ferrous scrap compared with the month before, according to the monthly averages issued by the Raw Material Data Aggregation Service (RMDAS) of Management Science Associates (MSA), Pittsburgh.

Average per-ton prices in the buying period fell below $400 per ton for all major ferrous grades in all three RMDAS regions.

The South region experienced some of biggest price swings, with the RMDAS prompt industrial composite grade (consisting of No. 1 busheling, No. 1 bundles and No. 1 factory bundles) there dropping $65 in value.

Pricing in all three regions fell considerably, however, with No. 1 heavy melting steel falling to $340 per ton in the North Midwest region (the lowest per-ton regional price for a grade). The prompt grade in the North Central/East region stayed closest to the $400 level, finishing with a $395 average per-ton sale price.

As the Bureau of International Recycling (BIR) Ferrous Division met in Rome in late May, the declining markets were just beginning to become evident to scrap traders who offered market reports there.

“Many producers in the steel and metals sector are considering [having] prolonged summer breaks,” warned Anton van Genuchten of Netherlands-based Reukeuma Recycling Alliance BV regarding conditions in Europe. “Consumers, except in Germany, are scared and not spending,” he added. “French and Italian car producers are hit hard; their [sales] have decreased by up to 30 percent.”

Tom Bird, who works for Van Dalen Recycling in the U.K., said purchases from Turkish mills in the first half of 2012 have at times occurred “at levels that disappointed.” Bird added, “The first five months of 2012 have been challenging.”

Blake Kelley, who is based in the Sims Metal Management office in New York, spelled out tight scrap supply conditions in North America but also noted that there were demand concerns on the horizon, including “the situation in Greece, a Chinese economic ‘slowdown,’ sputtering growth in India [and] excess steelmaking capacity.”

Hisatoshi Kojo of Japan’s Metz Corp. similarly painted recent market conditions in a positive light but warned of problems looming that could affect ferrous scrap pricing. “Due to the downturn of new export business, a sluggish steel product market and European economic malaise, higher prices seem unlikely and most scrap dealers are running their yards with minimum stock levels,” he stated.

With prices dropping and supplies tight, flows into scrap yards will remain a source of concern for processors and traders. In the U.S. in late May, Kelley described conditions consisting of “severe competition for unprepared scrap, as dealers are forced to reach out further to find supply volumes.”

Steel mill output, a natural place to look when determining why prices are falling, has not increased on a significant level in the U.S. According to the American Iron and Steel Institute (AISI), Washington, weekly domestic raw steel production in mid-June was 1.9 million net tons at a capability utilization rate of 76.2 percent. That is 1 percent higher than output during the comparable mid-June week of 2011 and down just 0.2 percent (4,000 tons) from the previous week in June 2012.

And looking at falling worldwide demand as a potential reason for falling prices, the Brussels-based World Steel Association (WorldSteel) has reported that global steel output increased by more than 2 million metric tons in May compared with the prior month.

Even in beleaguered Europe, steel production in May increased by about 400,000 metric tons compared with the previous month, with steelmakers in Germany accounting for one-fourth of that increase.

Although ferrous scrap purchases in Turkey were described at the BIR by Bird as at times “disappointing,” that nation’s steel output rose by a few thousand metric tons in May, reaching the 3 million metric ton mark for the month.

China also kept churning out steel in May, with its production of 61.2 million metric tons surpassing April’s total of 60.6 million metric tons.

A region that moved backward in its steel output in May was South America, with Brazil’s output declining from more than 3 million metric tons in April to 2.9 million in May. Argentina and Venezuela also produced less steel in May compared with April.

June 2012 Spot Pricing

Sellers received from $50-to-$65-per-ton less on the spot market for their ferrous scrap in the June buying period compared to the month before.

Reported regional aggregated spot market prices per gross ton shown for each commodity are based on all Management Science Associates (MSA), Pittsburgh, Raw Material Data Aggregation Service (RMDAS) participants’ actual order data submitted to and processed by MSA as of the 20th of each respective “buy month,” rounded to the whole integer. A map of RMDAS regions is available at http://rmdas.msa.com, as is a further explanation of RMDAS methodology and an accompanying disclaimer.

No. 2 shredded scrap is defined as containing 0.17 percent or greater copper content. The prompt industrial composite consists of an average of No. 1 bundles, No. 1 busheling and No. 1 factory bundles. Additional pricing information on each grade can be found at www.RecyclingToday.com.

© 2012 Management Science Associates Inc. All rights reserved RMDAS is a trademark of Management Science Associates Inc.

(Additional information on ferrous scrap, including breaking news and consuming industry reports, can be found at www.RecyclingToday.com.)