World Market

Toby Keith’s song "I Wanna Talk About Me" may be a big hit on the country charts, but in the ferrous scrap market everyone says, "I Wanna Talk About China."

While the talk seems to center on China, other markets are doing well—including some less traditional markets like Egypt and Spain—making this a busy time for exporting. Internationally, the market for ferrous scrap has been strong and it promises to continue the same way for at least the short term.

"Just phenomenal," is how Marc Sidell, vice president of Seattle Iron & Metals Corp., sees things in the Pacific Northwest.

"We’re riding the wave," says Anthony Rubino of Rubino Brothers, Stamford, Conn. "You just can’t shred and load fast enough. Actually, we can’t get the material into the yard fast enough," he adds.

"The long-term fundamentals remain strong," says John D. Carter, president and CEO of Schnitzer Steel Industries, Portland, Ore. He notes the strong demand for and finite supply of scrap metals as contributing to his "positive outlook" for scrap pricing.

ROBUST DEMAND. "The export markets remain fairly robust," Carter says. But he notes there is a lot of pressure on the market in light of freight rates, especially in the Pacific market. There is also some divergence between foreign and domestic prices and hot competition on the Eastern seaboard. He says export markets for ferrous scrap metal remained strong into early 2007 with average prices significantly higher than the first quarter of 2006 and only slightly lower than the near record prices in the fourth quarter of 2006. In addition, nonferrous prices, although lower than during the fourth quarter, remained strong for all grades of materials, Carter says.

Turkey, Malaysia and Spain are among the strong markets for Schnitzer. In fact, the demand from Black Sea areas like Turkey is causing a displacement in the regional domestic markets, according to sources in the scrap industry.

"The strength in the export market has impacted the availability of scrap in the Midwest for local mills," says David Wonkovich, president of Compass Trading in Independence, Ohio, and president of the Northern Ohio Chapter of ISRI (Institute of Scrap Recycling Industries Inc.). "High prices at the export yards are causing a shift for materials that would normally stay in the Midwest. Instead, they are going east."

The market is driven by a real need for steel scrap overseas. Wonkovich says the trend is supply driven and reflects a shortage, especially of cut grades. "But prime is in demand, too, and the demand for shredded is decent," he says.

In winter months, demand for cut grades often is at its best. Cut grades typically come from obsolete scrap, and in the winter, material does not flow into the yards as heavily. On top of that, it takes more time to process in the winter. As a result, Wonkovich sees a strong market for ferrous scrap into the foreseeable future.

"The ferrous market seems to be doing just fine. There is good demand and that is keeping the prices up," Sidell says. The strong prices are also pulling supply along, and he says the company’s Seattle operation has been able to get the scrap materials it needs. Demand is not focused on a single, or even a handful, of grades. It is solid across all grades of ferrous scrap.

Sidell says he expects the market to continue strong until after the XXIX Olympic Games in Beijing, and that’s looking through all of 2007 and into 2008—quite a ways out on the calendar. The Chinese are building like mad in anticipation of being in the world spotlight, and Sidell says he expects that construction boom to continue until after the Olympics.

"We’ll see the effect when China goes out of the market after all of the building they are doing for the Olympics is over," he says. Until then, he expects a strong market.

Whether a recycler is on the water or sells through intermediaries, the prospects are good. Most of the product from Rubino Brothers goes to export through brokers. Typically, the company will barge material down to New Jersey.

His material recently has found markets in Turkey and Egypt. While Turkey and other Black Sea ports have been traditional buyers, Egypt is a welcome relative newcomer to the market. "They are in it much more than some of the other countries," Rubino says.

The cold snap in early February and the Valentine’s Day Blizzard put a chill into the movement of scrap metal, but did not dampen markets for the material at all. It is difficult for tugs and barges to move in the bitter weather, just as Midwestern shippers have problems with rail transportation.

While shipping problems should melt with the spring, another problem might be around a bit longer.

The difficulty that has raised eyebrows in the international market is the U.S. government’s charge that China’s finished steel product shipments are unfairly subsidized. While that is an important matter for the industry, the more immediate question arises as to whether the Chinese will exact a toll by cutting back on imports of steel scrap.

UNFAIR TRADE? In early February, the U.S. government went after the Chinese for unfair trade practices. The U.S. told the World Trade Organization (WTO) that the Chinese unfairly subsidize the country’s steel industry—just one of several industries that the U.S. complained about. Others include the high-tech markets for computers and systems and the paperboard industry, which also is heavily involved in recyclables. The U.S. action is thought to be the largest trade complaint against China yet.

Some observers feel the multi-million-dollar question is whether the threat of U.S. penalties on finished steel imports from China will have a negative affect on ferrous scrap exports from the United States to China.

However, it may be a leap of faith to see a direct correlation between exports of scrap to China and the return of finished goods to the United States, cautions Scott Horne, ISRI’s general counsel and vice president of government relations. "Infrastructure development in China is phenomenal," he says. "The vast majority of scrap is going into their domestic infrastructure development."

While he stops short of speculating on what the Chinese government might do in the wake of any WTO decision, he notes that scrap is part of a global marketplace. "It’s like a balloon," he says. "You push on one side and it creates pressure on another."

He notes that the United States has been exporting steel scrap for 50 or 60 years. He says he doubts this particular WTO action will stop that.

"It won’t have any impact at all," Wonkovich expects. "It is too far removed for that, in my opinion."

Sidell does not expect a major disruption from the WTO action, either. In fact, he has a positive market outlook for strong Chinese demand that lasts until after the Olympic Games. "They are looking for everything they can get their hands on," he says. "Every time you think they will die off, things just keep going," he says.

Perhaps of more immediate concern to American recyclers is the Chinese government’s tougher environmental quality standards stance. China’s General Administration on Quality Supervision, Inspection and Quarantine (AQSIQ) is running inspections and penalizing recyclers who are not up to snuff (see sidebar on p. 156).

"I believe the market has gathered strength and will go up," Wonkovich says. While he is reluctant to pin a dollar figure on the increase, he says he does not see an end to its strength. "Any time soon? I don’t think so," he says. "We are in a strong market. The Turks need material. The weakening dollar helps the export markets, and the exporters are buying into the demand. China is strong, as well. There is strength all around Asia," he adds.

While they command a lot of attention, those may be sideshows to the booming global ferrous scrap market. Carter is positive about the future, as well. "The long-term fundamentals and outlook for our businesses remain strong," he says. Schnitzer has made some heavy investments to take advantage of the markets. "While the investments we are making have caused and will continue to cause short-term disruptions, we believe this focus on improving the efficiency of our operations will allow us to take maximum advantage of these favorable trends," Carter says.

Schnitzer installed replacement mega-shredders at its Oakland and Boston area metals recycling facilities. The short-term result was lower volumes and higher per-ton costs. But Carter says he expects to recover the volumes and to see a positive impact from the new equipment. Carter says that move was in keeping with plans to sacrifice short-term earnings for their long-term business goals.

On the East Coast, Rubino sees only good things ahead in the short term. "It will be a strong market, at least into April," he says. His only concern at the moment is being able to move material through the late winter months.

While he is keeping an eye on the situation with the markets in China, Rubino is bullish at the moment. "Things seem to be steaming along," he says. He looks for good things for at least the foreseeable future.