ISRI2017: Ferrous scrap faces cross-boundary issues

ISRI2017: Ferrous scrap faces cross-boundary issues

Low iron ore costs and global steel mill operating rates contribute to downward price pressures.

May 4, 2017
Brian Taylor
Auto Shredding Conferences & Events Ferrous

Pictured above, left to right: Greg Dixon of Smart Recycling Management, John Harris of Aaristic Services and Becky Hites of Steel Insights LLC.

 

China’s massive annual steel output is the result of several factors, according to panelists at the Ferrous Spotlight session at ISRI2017, the annual convention of the Washington-based Institute of Scrap Recycling Industries (ISRI). The impacts of China’s massive steel sector—considered to be overbuilt by most industry analysts—continue to weigh heavily on ferrous scrap pricing, they also commented.

 

Becky Hites, president of Atlanta-area-based consulting firm Steel Insights LLC, remarked that even during decades as the world’s largest economy, steel production in the United States did not exceed 140 million metric tons per year (in 1973), and in the 1960s the U.S. peaked at about 26 percent of global steel output market share.

 

“The U.S. has done a lot of house cleaning” since then, said Hites, adding that the U.S. steel industry experienced “about 50 million tons per year of closed capacity in the 1990s.”

 

From the 1990s to the present, China’s steel sector has risen to produce more than 800 million metric tons of steel each year, for 48 percent global market share. One of the results of China’s steel sector buildup has been that steel has been on the front lines of President Trump’s “tough on trade” approach.

 

Regarding steelmaking, Hites said, “The colonial model no longer holds. China is making 48 percent of the word’s steel and the U.S. just 5 percent, so we have to change our business models.”

 

Hites said China “is capitalist, except when it’s not,” with an example being the support it shows for state-owned steelmaking companies. She predicted that at some point China will attain World Trade Organization (WTO) market economy status, which could prove problematic in the steel sector.

 

Hites referred to Turkey as the “swing factor” in the ferrous scrap market, but noted that China also affects its demand for North American scrap by sometimes supplying low-cost billet for Turkey’s rolling mills, bypassing its melt shops.

 

John Harris of Canada-based consulting firm Aaristic Services said China’s steel industry dominance—and its reliance on basic oxygen furnace (BOF) steelmaking instead of scrap-intensive electric arc furnace (EAF) steelmaking—has been suppressing scrap prices and will likely continue to do so.

 

Harris said North America is at the far end of the EAF market share spectrum, using 65.8 million tons per year of scrap to make 110 million tons per year of steel. In the past two decades, while EAF steelmaking in North America has stagnated, China has been pumping out more steel via the BOF method.

 

In terms of what this means for the ferrous scrap market, Harris said, “Every 1 percent of [U.S.] capacity utilization rate equates to 54,875 tons weekly of scrap needed.” While not much Chinese steel is being imported directly into the U.S., some 25 percent of the steel used in the U.S. is imported, causing a ripple effect that keeps the capacity utilization rate below 75 percent. (China’s massive steel sector also is operating at only about 70 percent capacity, according to Harris.)

 

Two other trends could prove worrisome for ferrous scrap processors, said Harris. First, his estimate of the world’s global scrap reservoir shows some 2.35 billion metric tons of future scrap iron and steel in North America, but some 8.11 billion metric tons in China. With its BOF-intensive sector, this positions China as a future high-volume exporter of ferrous scrap.

 

On the supply side, Harris cautioned that 3-D printing technology is advancing rapidly, meaning fabricators of numerous products may soon begin converting to this essentially scrap-free manufacturing method, starting with the making of customized products and those made in small batches.

 

ISRI2017 was in at the Ernest N. Morial Convention Center in New Orleans April 22-27, 2017.