An unwelcome difference

When the phrase “what a difference a year makes” is used, it often points to the recovery or progress made by a person, company or organization. For the ferrous scrap industry, unfortunately, the notable differences of the previous 13 months have mostly been on the downside.

Ferrous scrap pricing gathered by American Metal Market (AMM) and RMDAS (the Raw Material Data Aggregation Service operated by MSA Inc., Pittsburgh) portrays an almost uninterrupted one-year march toward lower scrap values.

RMDAS shredded scrap pricing has fallen from $383 per ton in July 2014 to just $275 per ton in July 2015, losing more than 28 percent of its value.

AMM’s pricing, which includes the August buying period, shows similar or heavier price drops. Its Midwest Index No. 1 busheling grade fell in value from $401 per ton in August 2014 to $243 in August 2015, representing a 39.4 percent drop.

The AMM August index figures portrayed more bad news for a sector that has been fighting a battle against falling prices for a painfully long time. Scrap recyclers report being in a position of either holding inventories of declining value or selling into a falling, low-margin market.

Another factor in diminished scrap flows is that street-level scrap collectors are finding it unprofitable to take their pickup trucks out each day.

The difficult business conditions in 2015 were spelled out in the mid-year financial report of PSC Metals, Mayfield Heights, Ohio, which is part of Icahn Enterprises.

According to the Icahn Enterprises first-half 2015 10-quarter filing with the Securities and Exchange Commission, the scrap company took in just $212 million in revenue in the first half of 2015, dropping 43 percent from the $377 million in revenue earned in the first half of 2014.
 

Icahn’s PSC subsidiary has recorded a net loss of $14 million in the first half of 2015 compared with its $10 million loss in the first half of 2014. The company’s ferrous scrap tonnage sold dropped nearly 29 percent from 616,000 tons in the first half of 2014 to just 439,000 tons in the first half of 2015.

Referring to second quarter 2015 ferrous market conditions, Icahn Enterprises says in its 10-quarter filing, “The shipment decrease was attributable to reduced demand from domestic steel mills, where a third-party report indicated that steel output was 9 percent lower for the three months ended June 30, 2015, as compared to the corresponding prior year period.”

As with recyclers throughout the U.S., Icahn and PSC report that “lower ferrous market prices in the second quarter of 2015 continued to negatively impact the availability of feed.”

While PSC and other recyclers with inland operations remain most keen to see an uptick in domestic steel production, ferrous scrap shippers on the Atlantic and Pacific coasts are eager for more activity and higher per-ton offers from overseas buyers.

Although overseas buyers on the Atlantic Coast in particular are reportedly making more inquiries for scrap, they are by no means offering prices that cause an instant incentive to sell.

When AMM adjusted its export buying prices in early August, the East Coast index price for Nos. 1 and 2 heavy melting steel (HMS) scrap fell below the $200 per ton benchmark to $198.50.

Domestic steel production figures point to continuing weakness in the steelmaking sector, while international monetary conditions appear to be conspiring against either a rebound in U.S. production or the renewal of U.S. ferrous scrap exports any time soon.

On the domestic front, the American Iron and Steel Institute (AISI), Washington, has estimated domestic raw steel production at 1.756 million tons in the week ending Aug. 8, 2015, at a mill capacity rate of 73.4 percent.

The tonnage figure represents a 9 percent decrease from the 1.93 million tons produced in the comparable week of 2014, when the mill capacity rate stood at 80.2 percent.

Year-to-date production through Aug. 8, 2015, stood at 54 million tons, a 7.8 percent decrease from the 58.55 million tons produced in the comparable time frame in 2014. The average mill capacity rate has fallen from 78 percent in the first seven months of 2014 to 72.5 percent in 2015.

Internationally, while a recent World Trade Organization (WTO) ruling and trade initiatives signed by President Obama have provided hope for domestic steelmakers, the sudden decline in the value of the Chinese yuan has steelmakers worldwide concerned that this will abet the ongoing exporting of Chinese-produced steel.

The effects of steel being “dumped” by producers in China and other nations with excess capacity into nations such as the U.S., Turkey and India includes the dwindling of the ferrous scrap export market in the U.S.

If a weaker yuan joins the combination of a weak euro and a strong U.S. dollar, U.S. steelmakers and ferrous scrap recyclers may be fighting an international monetary flow of bad tidings.

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.