Losing value

Pricing for prompt scrap (No. 1 busheling) fell in October to below $390 per ton—a place it had seldom been in the previous 12 months.

According to the transaction figures collected by American Metal Market (AMM), domestic mill buyers paid $385.40 per ton for No. 1 busheling in their early October purchases, representing a decline of more than $15 per ton from the previous month.

The somewhat steep monthly drop was a change of pace from what had been a long period of relative domestic price stability as measured by AMM and the Raw Materials Data Aggregation Service (RMDAS) of MSA Inc., based in Pittsburgh.

Weaker pricing has been more in evidence on in the export market, where it appeared earlier in the year, with further price deterioration occurring in early October.

AMM’s export price indices for the blended No. 1 and No. 2 heavy melting steel (HMS) grade have been weakening throughout much of 2013, with the October declines proving steeper than most others.
 

The West Coast export index reported by AMM was more than $360 per ton in February 2014; but, after a prolonged slide, is down to $321 per ton as of October. For much of the year, the West Coast price has been slightly higher than the East Coast price, which has been negatively affected by a lack of demand from Turkey.

The price declines in October were steeper and more uniform than recyclers have been used to seeing in 2014, leading to concerns that some of the fundamentals underlying the market are either weakening or had not been properly reflected in earlier months.

As of mid-October, the lower pricing has not dramatically affected the flow of scrap into yards, according to several sources.

“Flow is not fantastic, but it is good,” says one Midwestern recycler, who adds that his facility is scrambling to fill delivery orders.

Transportation remains a vexing issue in some areas. A recycler in the Dakotas identifies it as the single greatest challenge for his business right now. “We are a little more challenged with getting material from here to market consistently and cost effectively,” he says.

“Trucking is difficult for everyone these days, and particularly so in the less densely populated areas,” he continues. “Export is difficult to access because of the [distance] to container yards, and rail is constrained due to all the oil that is now being railed from areas like North Dakota,” he comments.

On the demand side, statistics mostly point to stability from domestic steel mills and iron foundries, though the first full week in October demonstrated some weakness. Struggling economies in several other parts of the world, meanwhile, also may affect pricing for recyclers in North America.

According to the Washington-based American Iron and Steel Institute (AISI), in the week ending Oct. 11, 2014, domestic raw steel production was 1.8 million tons and the steel mill capacity rate was 75 percent.

That output level is down by 1.2 percent compared with the week before, when production was 1.82 million tons and the capacity rate was 75.9 percent. Steel output also is down from the comparable week last year, when 1.83 million tons were produced at a 76.5 percent capacity rate.

Year-to-date production through Oct. 11, 2014, stands at 75.2 million tons, which is up 0.5 percent from the 74.85 million tons of steel produced during the comparable period in 2013.

America’s largest export markets continue to show less interest in ferrous scrap shipped from the U.S. in 2014 compared with previous years. A newly revised forecast from the World Steel Association (Worldsteel), Brussels, does not provide cause for optimism, pointing to slow growth in global steel output in 2015.

Hans Jürgen Kerkhoff, chairman of Worldsteel’s Economics Committee, says, “The positive momentum in global steel demand seen in the second half of 2013 abated in 2014, with weaker than expected performance in the emerging and developing economies.”

The weakness caused Worldsteel to revise its 2014 output forecast downward. “The slowdown in China’s steel demand reflecting the structural transformation of [its] economy has contributed significantly to our lower global growth projection,” Kerkhoff says.

“We have also seen major slowdown in South America and the [former Soviet Union] countries due to falling commodity prices, structural constraints and geopolitical tensions,” he adds. “In 2015 we expect steel demand growth in developed economies to moderate, while we project growth in the emerging and developing economies to pick up. In China rebalancing will continue to act as a drag on steel demand,” Kerkhoff explains.

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.