Ferrous Report

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March 18, 2010
Brian Taylor

A CALM CONVERSATION

Steel mill buyers seeking prompt grades on the spot market saw the trend of rising prices continue in the February buying period. But after two months of significant price gains across all scrap grades, changes in the February buying period were less dramatic.

Mill buyers paid some $20 per ton more for prompt grades, while prices for shredded scrap and No. 1 heavy melting steel (HMS) were largely unchanged, according to the statistical summary of February spot buying from the Raw Material Data Aggregation Service (RMDAS), compiled by Management Science Associates (MSA), Pittsburgh.

The premium paid for prompt grades (No. 1 busheling, No. 1 bundles and No. 1 factory bundles) widened to a national average of some $70 per ton compared with shredded scrap and $100 per ton compared with No. 1 HMS.

That spread is significantly different from what occurred from August 2008 to January 2010, when the spread between prompt and shredded scrap hovered around $40 per ton and $65 to $70 between prompt grades and No. 1 HMS.

The patterns in the February spot market were uniform across all three RMDAS regions (South, North Midwest and North Central/East). While spot buyers were paying from $16 to $23 more per ton for prompt grades across all regions, the other two grades consistently showed little change in price.

Buyers of No. 2 shredded scrap paid, on average, from $2 to $4 less per ton across all three regions. Meanwhile, No. 1 HMS was being purchased for an average of $2 per ton more in the North Central/East region and for $4 per ton less in the North Midwest.

North American demand for scrap continues to move slowly upward, while pricing also continues to be buoyed by export demand and relatively weak generation.

Although scrap recyclers have reported that strong pricing has boosted the amount of scale traffic for obsolete scrap, supply remains limited by a number of other factors: weak industrial output, a depressed construction and demolition industry and wintry weather causing regional interruptions.

A scrap recycler in the Southeast estimates that demolition activity in his region is off by 40 percent or more in a part of the country that does not experience the same seasonally reduced schedule that is common farther north.

Weather interruptions have hit the South this winter, however, in terms of snow and ice affecting roads (and drivers) who are not accustomed to wintry conditions.

Scrap recyclers in all regions express an opinion that a recovery in some form—either in the manufacturing or in the construction/demolition sector—will be the best news for the supply side.

Economists who have predicted a slow recovery continue to appear on target, as witnessed by economic data from the manufacturing sector that could affect future scrap supply.

Two surveys in the northeastern United States have pointed to the beginning of a recovery for manufacturers. The Federal Reserve Bank of Philadelphia, after surveying companies in its region (eastern Pennsylvania, southern New Jersey and Delaware), found that “manufacturing firms reported a notable pickup in new orders [in February]. Overall, firms remain generally optimistic about growth for the manufacturing sector over the next six months. There was a notable increase in the current new orders index, suggesting an improvement in demand for manufactured goods.”

Similarly, the Federal Reserve Bank of New York has reported a manufacturing rebound. In February, respondents to a survey in that region (New York state, 12 counties in northern New Jersey and one county in Connecticut) led the Federal Reserve Bank of New York to conclude, “Business activity improved for a seventh consecutive month in February, and at a relatively rapid pace.”

On the scrap demand side, more than 1.64 million tons of steel were produced in the United States the week of Feb. 7 to 13, 2010, according to the American Iron and Steel Institute (AISI), Washington, D.C. That figure represents the use of 68 percent of steel mill capacity—a healthy number compared with the 45 percent of capacity that was reportedly in use during the second week of February in 2009. Only 1.06 million tons of steel were produced during that week, according to AISI.

Globally, steelmakers in the 66 nations traced by the World Steel Association, Brussels, produced nearly 109 million metric tons of steel in January 2010, an increase of some 2 million metric tons compared with the month before.

(Additional news about ferrous scrap, including breaking news and consuming industry reports, can be found at www.RecyclingToday.com.)