Ferrous scrap prices rose during the July buying period, with domestic steelmakers in particular paying more for prime scrap grades, while Turkish mills placed two bulk cargo orders in mid-July.
Despite the good news on pricing for ferrous scrap dealers, the summer of 2013 is not necessarily shaping up to be an easy one, according to sources, especially in terms of securing supply.
A ferrous scrap buyer in the Midwest says generation has not necessarily declined, but it also has not bounced back in any meaningful way. “We’re still down some 15 percent compared to the [monthly tonnage] highs we hit back in 2007 or 2008,” the buyer says.
The demolition and construction sectors remain particularly sluggish, the buyer adds, especially in the Midwest. “Demolition had been a good source of tonnage for us, but in the Midwest there are not new businesses moving in and so not much pickup in either construction or demolition activity.”
A scrap buyer in the Southeast says demolition had picked up in the spring and early summer in his region but has subsequently tailed off. “Supply is relatively scarce” in the Southeast compared with the amount of processing equipment that has been installed, the buyer says. “We’d like to have 20 to 25 percent more volume to match our own processing capacity,” he comments.
Regarding peddler traffic and small dealers, the Midwest buyer cites two sources of difficulty: He says price-sensitive sellers are waiting for copper and stainless steel prices to bounce back, therefore they are holding on to their nonferrous and ferrous material.
In addition, he says, recyclers who operate near state borders or in a particular city may suffer from uneven anti-scrap-theft laws. While the perception may be that dishonest scrap sellers will be the ones gravitating to less-strict yards, the ferrous buyer says that is not an accurate portrayal.
Two different recyclers located in larger cities report losing out on contractor and peddler scrap flows to competitors in outlying areas beyond the reach of local ordinances.
“Even legitimate peddlers don’t want the hassle of fingerprinting or photos being taken, so they choose the easier path and go to recyclers across a state line or to ones who don’t follow all the rules,” the ferrous buyer comments.
In addition to an economic recovery moving at a glacial pace and anti-theft rules that can be unevenly applied or skirted, shifting global demand for ferrous scrap also is keeping ferrous scrap recyclers guessing.
In mid-July, American Metal Market (AMM) reported two bulk shipments sold off the Atlantic Coast to Turkish mills but said overall monthly demand was not great enough to lift the publication’s export pricing indexes.
Domestic demand, however, helped boost AMM’s No. 1 busheling grade price by nearly 9 percent in July to more than $410 per ton.
Mills in the Great Lakes region and other parts of the Midwest were willing to pay more for prime grades, while scrap processors and brokers struggled to find enough material to fill their orders, according to AMM.
Prices for heavy melt scrap and shredded scrap also rose, but by from 5 to 6.5 percent rather than the larger increase enjoyed by prime grades.
On the demand side, the domestic steel industry has been stable in July, according to statistics gathered by the American Iron and Steel Institute (AISI), Washington, D.C. For the week ending July 13, 2013, domestic steel production was 1.88 million tons , produced at a mill capacity rate of 78.5 percent.
Production was up 3.2 percent from the identical week in 2012 and up 0.3 percent from the previous week (ending July 6, 2013). Year-to-date steel production of 51.6 million tons has occurred with an average capacity rate of 76.9 percent. That is down from last year’s total of 54.5 million tons of output in the same period.
Globally, steelmakers in China continue to churn out more steel despite news reports of an economy that is growing at a slower pace. In the first five month of 2013, China’s output was at 325 million metric tons, up considerably from the 301 million metric tons produced in the first five months of 2012.
Steelmakers in the critical export market of Turkey have been producing 4 percent less steel thus far in 2013, falling from 15 million metric tons of output in the first five months in 2012 to 14.4 million metric tons produced in early 2013.
In the first four months of 2013, data collected by the U.S. Census Bureau show ferrous scrap exports from the U.S. to Turkey having fallen by more than 20 percent. Turkey remains the highest-volume scrap export destination with 1.7 million metric tons purchased, followed by Taiwan with 1.0 million metric tons and South Korea with 745,000.
**FOB New York, in metric tons; **FOB Los Angeles, in metric tons. The American Metal Market (AMM) Midwest Ferrous Scrap Index and the AMM Ferrous Scrap Export Indices are calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The AMM Scrap Index includes material that will be delivered within 30 days to the mill. Spot business included after the 10th of the month will not be included. The detailed methodologies are available at www.amm.com/pricing/methodology.html. The grades are based on the Institute of Scrap Recycling Inc. (ISRI) specifications from 2012.
Hope of a strong recovery in nonferrous markets by the end of the year is rapidly disappearing.
During the first quarter of 2013, a number of scrap metal recyclers said they expected the overall economy to rebound by the second half of 2013. The improvement, many theorized, would result in an improvement in nonferrous scrap markets. However, many of these same scrap metal dealers are now saying that a sustained improvement in nonferrous metals won’t take place until 2014 at the earliest.
In adjusting their outlook, scrap metal recyclers say they see little that could boost the overall manufacturing sector, which would stimulate scrap supply and demand.
In fact, several sources say they wouldn’t be surprised if the overall economic recovery stalled by the end of this year.
“Granted, the summer is usually a slower time of the year for the scrap market, but it seems much slower now than usual,” one Midwestern scrap recycler says. “Supply just isn’t out there right now.” He adds that there is significant competition for the material that is available.
Another recycler says the market has slowed because the office phones are not ringing as much as usual. “The phones aren’t ringing, and the future seems to be getting softer.”
The big problem for most scrap dealers is the lack of generation. This trend has plagued the industry for the past year, though it appears to be more challenging now. One source in the East says that with less material available, competition for supply is heated, shrinking margins to levels that make it difficult to run profitably.
The copper market has been buffeted more than most grades. Despite a recent upward move toward the latter half of July, prices for the red metal have been trending downward. Primary copper appears to be in oversupply, with new capacity reversing the shortages seen in the market several years ago. This is keeping a lid on prices for scrap material.
“We seem to be waiting for something to happen to get the grade going,” one broker on the East Coast says.
Unfortunately, China, which has been the go-to destination for a growing volume of copper scrap, has been reducing its buying as its economy continues to slow down. One exporter says China is buying far less copper scrap than it has in the recent past. “There just is no spark there,” he says. “There is nothing to be optimistic about.”
Aluminum markets are stuck in oversupply. Aluminum producers continue to shutter plants, despite a pickup in some sectors of the economy, notably the auto industry, that require a growing amount of aluminum.
Estimates from the Aluminum Association, Arlington, Va., show that aluminum demand in the United States and Canada totaled 8.18 billion pounds in the first four months of 2013, a 2 percent increase over the same period in 2012.
Despite the reported growth in demand, the Aluminum Association and the Aluminum Association of Canada, Montreal, report that primary aluminum production in the United States and Canada stood at an annual rate of 5.04 million metric tons during May 2013, down 0.5 percent from April.
Material recovery facilities (MRFs) and paper stock processors appear to be adjusting to the new normal under Operation Green Fence.
After the initial drama generated by the implementation of China’s Operation Green Fence, it appears that many single-stream MRFs have made adjustments to ensure they are producing cleaner bales of material. Several sources say that many of these facilities have slowed down their operations and added more personnel on the line to ensure that outthrows and contaminants are kept to a minimum.
Other paper stock dealers who had been shipping significant quantities of mixed paper to China have opted to stop shipping this material for fear of their shipments being rejected, according to sources.
Many people say the move to improve recovered fiber quality will benefit the paper industry in the long term. However, in the short term a number of smaller single-stream operations are struggling to remain in business because they have had to cut run times and spend more time cleaning up loads at the same time pricing has softened, according to sources.
Despite the challenges associated with shipping recovered fiber to China, a number of paper recyclers say the market for old corrugated containers (OCC) remains in balance. Orders for OCC destined for China have picked up a bit this summer, an exporter notes. This has helped to keep material moving.
The moderate increase in recovered fiber shipments to China follows several months earlier this year when Chinese buyers had reduced their purchases of OCC from the U.S. market.
One East Coast paper stock dealer says the OCC market “is looking pretty good right now. Exports are seeing a nice rebound in pricing.”
At the same time, he continues, domestic board mills are reportedly sitting on large inventories of OCC and are not looking to buy much more material presently. “They are crammed solid with bales,” he adds.
Packing plants, however, have little in the way of inventory, another source says.
Part of the reason packers have sparse inventories is the decline in generation. While not as extreme as in other commodities, a number of sources say less OCC is on the market now than in the past.
While OCC is holding up fairly well, mixed paper and old newspaper (ONP) are having problems. “Mixed paper is in the pits,” one source says. “It is awful. Exports are in shambles.”
The main reason these grades have slumped in the export market has to do with quality, sources say. A number of paper stock dealers fear that mixed paper shipments to China and other Asian countries will be rejected based on quality, which has reduced the amount of material U.S. dealers are willing to ship there.
As a result, one paper stock dealer says, some processors are encountering financial difficulties. “You can’t store your way out of the market right now,” he says.
A number of other paper stock dealers say they are blending their mixed paper and ONP together, labeling the load ONP and adjusting for the inevitable material downgrade once the shipment arrives to the customer.
Domestically, Pratt continues to buy a fairly significant amount of mixed paper. The company, with locations in New York, Georgia and Louisiana, is one of the few paper mills that is actively looking to buy sizable quantities of the grade. However, with the downturn in the offshore market for this material, Pratt has become more discriminating in its purchases of mixed paper, sources say.
While bulk grades are in somewhat of a bind, markets for high grades of recovered fiber have picked up a bit. Domestic mills are running at a pretty decent clip, and prices are holding up fairly well.
Coated book stock, sorted white ledger and office pack all are finding ample end markets and solid prices. “We are having no problems moving these grades,” a broker says. “Premiums being paid are good.”
Another source says, outside of the United States, purchases of deinking grades are somewhat weak. “Mexico is not buying right now, and South America is not strong,” he says.
The source adds that demand and pricing for pulp substitutes, which were hot earlier this year, also have cooled off a bit as the summer heats up.