Slow on the trigger

Ferrous scrap recyclers around the world, as of early October, were still awaiting any change in circumstance that might trigger a rebound in the value of scrap iron and steel.

Although the global economy overall is by no means in crisis, with modest GDP growth in most of the world’s largest economies, conditions in the steel, iron ore and ferrous scrap markets in much of the world are more reminiscent of a recession.

Throughout the first portion of the 21st century, China’s monumental building boom and urbanisation led to growth in steel production and metallic demand not only in China, but also neighboring countries, including Japan and South Korea.

Monthly statistics, however, seem to increasingly point to China’s infrastructure and urbanisation movements having reached their peak steel intensity phase, with steelmakers not only in China but also in some of its neighboring nations ramping down their output in 2015.

Through the first eight months of 2015, nations with steel slowdowns in effect include: China (down 2.1%, or 11.5 million tonnes); Japan (down 4.9% or 3.6 million tonnes); South Korea (down 3.2%, or 1.5 million tonnes); and Thailand (down 7.4%, or 200,000 tonnes).

Slower melt shops are the result in Asia of China’s construction slowdown, but steelmakers in other parts of the world say their problems are caused by those same furnaces staying at full production throughout 2014 and early 2015 and sending the output to wherever they could find a buyer. Thus, while the United States and the EU may be enjoying GDP growth and a reasonably healthy building sector, steelmaking furnaces there are not melting more scrap as a result.

Instead, steel output in the United States is down 8.5%, according to Brussels-based Worldsteel. That 5 million tonne drop in U.S. steel production means scrap processors there face not only reduced demand from their overseas buyers but from domestic mills as well.

In the EU steel output in 2015 has held steady, with producers there making 113.8 million tonnes of steel in the first eight months of the year compared to 113.6 million tonnes during the comparable period of 2014.

But that doesn’t mean the ferrous scrap market is much more enjoyable for European recyclers than it is for those in the United States. A series of price drops has been the predominant trend in 2015 for the ferrous scrap indices calculated by Brussels-based EUROFER.
 

EUROFER’s shredded scrap index figure stood at 241 in January 2015 (with the index number of 100 equaling the price in 2001). The figure promptly dropped to 223 in February and ranged in the 220s and 230s through June.

July brought with it a steep drop to 217 followed by another drop in August, with the shredded scrap index sinking to 197—the first time it has been below 200 since Dec. 2009.

Italy-based ferrous scrap trader Ruggero Alloci of Alocci Rappresentanze Industriali, Genoa, says as of early October he sees few reasons to think the bottom to this market trough has yet been reached.

“During September scrap prices moved down here in Italy more than €20 on the domestic market, where the mills bought day by day to cover their needs,” says Alocci. “Price reductions for monthly contracts from European suppliers [have been a little lower], around €15, [and] the volumes purchased have been lower than in the past,” he adds.

Alocci cites several factors as contributing to the lower pricing. “The steelmakers’ sales are suffering from the competition of cheaper imports of semis and coils,” he says. Sales of scrap to the mills also are lower because of the mills’ “continuous postponement of replenishing [scrap] inventories, as they are convinced that to buy a day later could be better than a day before.”

Industrial northern Italy also is feeling ripple effects from the Volkswagen diesel emissions scandal, as that major automaker retools to face a major recall and redesign effort. “The VW ‘Dieselgate’ incident is influencing the more than 1,000 Italian suppliers of the VW group, who right now are receiving fewer orders for steel and mechanical components,” says Alocci.

The situation has Italian steelmakers uncertain of future orders and unwilling to stock up on scrap. “Planned EAF mill output reductions will further influence [scrap] purchase volumes,” says Alocci.

“Some mills are suspending production for one week a month, others for a couple of days a week,” Alocci continues. “If nothing changes in the short-term, the end-of-year holiday [shutdowns] will be longer and longer.”

The gloomy outlook must seem familiar to ferrous scrap recyclers in North America, where slack demand and tumbling prices have marked a year that has yielded little positive news in its first three quarters.

After a September that saw prices sink to the $217 to $244 range (depending on the grade), American Metal Market was reporting in early October that mills in the Chicago and Detroit regions were buying heavy melting steel (HMS) grades for as little as $150 per ton, or prices not seen since the financial crisis era of late 2008 and early 2009.