Anticipation grows

Traders who thrive on excitement and volatile pricing likely have been disappointed in the ferrous scrap sector throughout 2014. Negotiations between scrap processors and brokers and buyers from domestic steel mills and foundries remain contentious each month, but the end results most often have been slight $1-to-$5-per-ton changes.

Scrap processors and operations personnel who appreciate predictability and consistency, on the other hand, can look back on 2014 as a year that has caused fewer headaches and ulcers compared with some of its predecessors.

Consistent-to-steadily-rising scrap flows have characterized the buy side for scrap processors in 2014.

On the sell side, largely stable domestic mill buying and continued waning demand from overseas buyers combined are on track to cause the volume and percentage of U.S. ferrous scrap exported to decline again in 2014.
 

Steady but not remarkable

When asked about scrap generation, many processors continue to recall the peak market years from roughly 2003 to mid-2008, when both prices and scrap flows were climbing toward an impressive summit.

Although some recyclers continue to make the comparison to that peak period, more recently others have fallen back into simply considering the health of scrap flows compared with the year before.

Judged by the latter of the two standards, scrap flows as described by most recyclers and as gauged by statistical measures have been healthy but not soaring in 2014.

One processor contacted says that while flows have been steady to slightly higher in 2014, current levels of demand require more scrap yet. “We are struggling to finish orders,” he says as of mid-September.

Contributing to the problem for this recycler, who is in the Ohio Valley region, has been difficulty in finding trucks and drivers as well as (during the fall harvest season) receiving timely delivery of rail cars. “Rail cars are hard to get and there are simply no trucks to ship—and if you find one, the prices are way up.”

Ferrous scrap scale prices—linked in part to mill buying prices for No. 1 heavy melting steel (HMS)—have been stable through most of 2014 but have not soared upward at any one time in a way that may attract sellers holding onto material.

National average mill buying prices for No. 1 HMS have ranged from $363 to $380 per ton between March and September 2014, according to the Raw Material Data Aggregation Service (RMDAS) from MSA Inc., Pittsburgh.

Pricing has been strong enough to keep steady generators of ferrous scrap coming across the scale; but, according to many recyclers, it has not been attractive enough to boost flows from several other sources that wait for a peak month, including:

• auto dismantlers with enough space to hold on to auto hulks;
• some smaller dealers, also with sufficient real estate to hold on to some of their better iron and steel grades; and
• rural and urban scrap scavengers, who scour fields and abandoned buildings for scrap.

Not all recyclers say they are convinced that a price spike will draw out large volumes of obsolete scrap, with many wondering whether the freelance scavengers in Rust Belt cities in particular may have stripped buildings fairly clean in the previous 10 years.

As recyclers wait for a potential boost in obsolete scrap caused by a price hike, industrial generation also is most commonly described as steady in 2014.

The auto industry in North America enjoys healthy demand for its products. A mid-September Wall Street Journal report notes that “annualized sales of new cars and light trucks hit 17.4 million vehicles [in August 2014], the most since 2006.”

Summarizing the state of the U.S. auto industry in the “Heard on the Street” column, the Journal’s Justin Lahart adds, “While [September] probably won’t be as strong, 2014 will go down as the year U.S. sales fully recovered from the recession.”

Stampings, turnings and other scrap generated by auto production are not the sole sources of material entering scrap yards in 2014, though U.S. Commerce Department data do single out production in the automotive and aircraft sectors as exceeding growth in appliances and other manufactured goods.

The steady scrap generation caused by auto production feeds into steady demand at steel mills in the U.S., helping to explain the stable pricing in 2014.
 

A mirror image

Much like scrap pricing, which has occasionally mirrored itself from month to month this year, U.S. steel production and demand for scrap in 2014 has been shaping up to be remarkably similar to the preceding year.

Steel mill receipts of ferrous scrap tracked by the United States Geological Survey (USGS), Reston, Virginia, reveal few changes from 2013 to 2014.

In the first half of 2014, the USGS says domestic steel producers took delivery of 22 million metric tons of ferrous scrap—the identical amount they received in the first half of 2013.

The division of that 22 million metric tons between integrated and electric arc furnace (EAF) mills has changed only slightly. In 2013, EAF mills consumed 11.6 million metric tons of that total, while in 2014 their share climbed to 12 million metric tons (54.5 percent), according to the USGS.

Statistics gathered by the American Iron & Steel Institute (AISI), Washington, indicate domestic steel production, such as scrap consumption, is on a similar plateau in 2014.

Year-to-date steel output in the U.S. through Sept. 20, 2014, was 69.77 million tons, at a mill capacity rate of 77.3 percent, according to AISI. That is an increase of 0.7 percent from the 69.30 million tons produced during the same period in 2013, when the mill capacity rate was 77 percent.

Steel producers within the United States started 2014 with several months of lower output compared with the previous year. Most weekly reports from the AISI in the second half of 2014, however, have shown growing output, until producers caught up with and eventually surpassed last year’s production levels.

In the week ending Sept. 20, 2014, for instance, steel production was 1.89 million tons at a capacity rate of 78.6 percent. That is relative to production of 1.87 million tons in the comparable week of 2013, when the capacity rate was 78.3 percent.

Scrap recyclers in the Great Lakes region and the South have been enjoying the greatest amount of nearby demand in 2014, as measured by AISI steel production statistics. Steel production for the week ending Sept. 20, 2014, showed steelmakers in the Great Lakes region produced 687,000 tons of steel compared with 658,000 tons in the South; 244,000 tons in the Midwest; 211,000 tons in the Northeast; and 91,000 tons in the West.
 

A potential wild card

An undeniable trend in the first half of 2014 and a source of concern for ferrous scrap processors with export-focused operations has been the decline in overseas demand for U.S. ferrous scrap.

The trend is not new. As reported in a ferrous scrap commodity focus story earlier this year, it was the topic of Institute of Scrap Recycling Industries Inc. (ISRI) Chairman Doug Kramer’s presentation when he offered the point of view of a California scrap recycler at the 2014 Middle East Metals Recycling Conference in Dubai, United Arab Emirates, in March. (See “Smaller Surplus,” starting on page 46 on the May 2014 issue of Recycling Today, available at www.RecyclingToday.com/rt0514-ferrous-scrap-update.aspx.)

Kramer’s concern about reduced ferrous scrap shipments to China, Taiwan and South Korea off of the West Coast is matched by concerns about reduced orders from consumers in Turkey and India off of the East Coast.

Each of these nations, which have imported considerable volumes of ferrous scrap since 2000, may be making major strides in their attempts to narrow their internal scrap deficits.

Figures that have been compiled by the Bureau of International Recycling (BIR), Brussels, and its Ferrous Division Statistics Advisor Rolf Willeke, demonstrate the declines in import buying from all nations in 2013 compared with their buying activity in 2012:
 

As measured by the WorldSteel Association, Brussels, only South Korea actually decreased its steel output in 2013, while the others experienced increased output despite importing less ferrous scrap. That points to Turkey, China, India and Taiwan relying on a combination of greater amounts of internally generated scrap or greater amounts of iron ore, pig iron or other metallic units.

USGS data show few signs overseas demand is returning. While the U.S. exported 9.92 million metric tons of scrap in the first half of 2013, only 7.59 million metric tons were exported in the first half of 2014.

Steelmakers in Turkey, who bought 2.73 million metric tons of U.S. scrap in the first half of 2013, reduced their intake by 34.8 percent to 1.78 million metric tons in the first half of 2014. Exporters on the West Coast have fared slightly better, with South Korean purchases of U.S. scrap falling 22.8 percent from 1.07 million metric tons in the first half of 2013 to 826,000 in the first half of 2014.

Exports to Taiwan fell by 8.2 percent in the first half of 2014, while those to China have plunged by 59.4 percent.

A boost by overseas buyers is the kind of factor that could cause ferrous scrap prices to rise, but few indicators are pointing to a renewed surge in orders.

The world’s largest steelmaker, China, has said its focus on cleaner air and resource conservation could cause it to divert some of its basic oxygen furnace steelmaking to scrap-intensive EAF production, but little demonstrable investment has occurred.

In the meantime, North American ferrous scrap recyclers can operate predictably without extreme price volatility, though some may admit that if something happens to cause prices to spike upward they won’t mind some excitement.

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