A lift from the edge
Improved conditions finally observed in global steel market are better as demand is steady or has edged up. There’s good news on demand side, the long steel products market had recently fallen to price levels that made no economic sense and doing business had become questionable. The steel world marooned off into senseless across-the-board price erosion from October 2015 until mid-February 2016. However, there are now a few factors that have caused old-fashioned demand to play an important role in supporting mill-initiated price increases, in addition to the seasonal factors on the demand side.
First of all, protectionism has been the theme of the month. India introduced minimum import prices for a number of finished steel products, which gave a boost to domestic steel producers. The US and Europe have also introduced measures to protect their domestic steel sectors. These activities have added demand for ferrous scrap in multiple markets and made the market outlooks a lot more optimistic than they have been in a long time. Up to 300,000 metric tons of ferrous scrap was sold to India in the last month and a half.
Secondly, Turkey has maintained steel output levels unchanged from the previous year when looking at the January figures, which is a positive factor for ferrous scrap should this trend continue. Demand for ferrous scrap has risen in the main markets during the given period and the outlook is that demand will be solid for the first and second quarters of 2016. Iron ore pricing has also been firming over the period and has provided support for steel pricing.
Thirdly, Freight rates continue to be on the low side which allows markets to extend their reach further than normal.
Ferrous scrap gained a respectable value in the March 2016 buying period, a welcome development for many processors of scrap. Panelists at a session focused on scrap at the Platts Steel Markets North America Conference, which took place in mid-March in Chicago, offered several reasons for the price rebound.
Considering that China made half of the world’s steel in 2015, steel and ferrous scrap pricing is “all about China—everything else is noise,” said Pete Meyers a vice president with New Jersey-based Metalico. Even the Turkish export market, the largest overseas destination for U.S. ferrous scrap, has been affected by China’s steelmaking overcapacity, said Meyers. Many Turkish rolling mills in 2015 and early 2016 have been buying inexpensive Chinese billet rather than operating their melt shops at full capacity, he noted.
Scrap has begun to close that affordability gap, said Meyers, bringing Turkish buyers back into the market at the same time that United States flat-rolled mills are increasing their purchase volumes. “I think it’s safe to say the scrap market is going to get stronger in the next couple of months, but the [higher prices] may not be sustainable,” Meyers cautioned.
Greg Dixon of Kentucky-based Smart Recycling Management said scrap processors and sellers may need to accept that ferrous grades are back in their traditional price range and out of the “totally different range” they inhabited from 2004 to 2013.
The return of lower prices has harmed the scrap collection infrastructure, said Dixon. “Peddler traffic is a faucet and it will turn off sometimes,” said Dixon. He said the healthy automotive sector in the U.S. is “the only thing that has kept scrap flowing.”
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According to Meyers, “The collection process has, to some extent, broken down because of lower prices. The lower level of the food chain is doing something else. It’s simply not being collected.”Joseph Ward of the EMR Group pointed to the demolition sector as another price-sensitive scrap generator. “When plate and structural scrap has a high value, demolition firms will pay to get the job, but not now,” he stated. “Everything is economically driven.”
Rich Brady of OmniSource Corp., which is a subsidiary of Fort Wayne, Indiana-based steel producer Steel Dynamics Inc., said the larger presence of publicly traded companies in the scrap sector has brought with it “different models and philosophies,” including a “focus on inventory turns and near-term financial returns.” Brady and Ward said there are still regions in the country where too many shredding plants are competing for the same feedstock. Ward commented that shredding plants in rural regions may be at a disadvantage, since they may not be able to attract scrap over longer hauls when scale prices are this low.
The good news for shredder operators is that shredded grades in early 2016 have fetched a few dollars per ton more than prime grades, a rare pricing phenomenon. Ward said prompt grades are more widely available, and both he and Dixon said plant operators also have improved the quality and chemistry of their shredded grades. “Shred is cleaner than it was in the past,” said Ward. According to Dixon, “Shredders have come a long way in making a product that is a good product.”
In conclusion I’d say that “Good days” are ahead. The global oil price is also getting better. So, the ferrous scrap market is on the booming side. The scrappers can afford to smile at the storm, forgetting all the bygone gloomy days.