Half-price sale

Ferrous scrap recyclers did not intend to enter the holiday shopping season with a half-price sale; but, after the November 2015 mill buying period, scrap processors are shipping out materials and receiving 50 percent or less compared with one year ago.

Transaction pricing recorded by the RMDAS (Raw Materials Data Aggregation Service) methodology of MSA Inc. and surveyed pricing collected by American Metal Market (AMM) portrays a market where scrap was trading in the $335-to-$350 per ton range in November 2014 compared with prices in the $140-to-$160 range now.

A California-based scrap recycler says he discerns no signs pointing to a price turnaround anytime soon, based on either domestic or overseas demand.

The plunging price of AMM’s West Coast Export Index points to the difficult conditions on the Pacific Coast, where scrap is being purchased for $19 per ton less than on the East Coast—a difference of 10.5 percent in value.

The Californian says he can garner slightly better prices for the specialty foundry grades he prepares and sells, but simply no profitable business model can be had when prices fall so swiftly and steeply.

“You can cry if you want, but it’s crying over spilled milk,” he comments. “Those October and November prices fell, and there isn’t anything you can do to rewind it.”

A recycler in the Pacific Northwest is likewise unconvinced that a rebound is just around the corner. “I personally think commodity prices will stay low in 2016 and probably 2017,” he says as of early November, when ferrous and copper scrap prices were dropping steadily.

Both western U.S. recyclers pointed to reports of massive amounts of Chinese steel that either already has been exported or is reportedly in inventory waiting to hit the world’s markets.

Every ton of steel sitting on the ground in China potentially represents a ton of scrap that will not be needed by U.S., South Korean or Taiwanese steelmakers as they keep their production tapered back. “What we hear from other Asian countries is that China is [still] dumping steel in such large volumes,” says the Pacific Northwest recycler.

Ferrous scrap prices are unlikely to increase while steel prices are still falling, unless a scrap supply deficit makes itself apparent. One possible indication of that happening has been the change in the spread between shredded scrap and prime grades.
 

In a market rarity, AMM surveying indicated steel mills paid more for shredded scrap on average in November 2015 ($162 per ton) than they did for AMM’s No. 1 busheling grade ($161).

One year ago, in November 2014, the spread between the two grades was more than $27 per ton, with No. 1 busheling selling for more than $353 per ton, while shredded scrap was trading at $326. That type of spread is more typical as a premium for the cleanliness and good chemistry associated with busheling and prime grades.

In the current market, however, the prime grades continue to flow from stamping plants and other manufacturing facilities while price-sensitive shredder feedstock has declined dramatically in response to lower scale prices.

Whether reduced supply can begin to exert some upward pressure on scrap prices will depend on how much scrap domestic mills or overseas buyers really want. Statistics gathered by the American Iron and Steel Institute (AISI), Washington, are not encouraging.

In the week ending Nov. 7, 2015, steel production in the U.S. was 1.62 million tons, and the mill capacity rate was 67.7 percent. That compares with production of 1.85 million tons in the week ending Nov. 7, 2014, when the capacity rate was 77.2 percent. Compared with one year ago, output by steelmakers in the U.S. was down 12.8 percent for the week.

Production in that most recently completed week also was down 1.4 percent from the previous week, indicating steelmakers were not experiencing any positive momentum heading into the final two months of the year.

Therefore, year-to-date output that is down 8.2 percent compared with 2014 production appears unlikely to rebound in any meaningful way, despite the fact that the volume of imported Chinese finished and semifinished steel has declined compared with earlier in the year.

The situation U.S. steelmakers find themselves in is not unique, with global production and consumption of steel showing weakness in several nations that typically buy ferrous scrap from the U.S.

Among the nations with declining steel output in the first nine months of 2015 compared with one year ago, are Turkey (down 7.8 percent, or 2 million tons), South Korea (down 3.4 percent, or nearly 2 million tons), Japan (down 5.2 percent, or more than 4 million tons) and Egypt (down 8.8 percent, or 400,000 tons).

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.