A late November and early December lull in ferrous scrap buying activity prompted a price drop that was quickly met by the return of export orders in mid-December.
In North America, the buying lull was likely the result of seasonal factors in part but also may have tied into reduced expectations and reduced output at domestic steel mills.
The American Iron and Steel Institute (AISI), Washington, D.C., reported domestic raw steel output for the week ending Dec. 8, 2012, was down 3.3 percent year-on-year and 0.9 percent from the previous week. The weekly output of 1.8 million tons resulted in a capacity utilization rate of 72.9 percent, AISI reports.
Pre-election jitters about the economy seem to have been followed quickly by pre-“fiscal cliff” jitters, as economic indicators such as the consumer confidence index and purchasing managers’ indices released in early December point to confidence levels that are largely unimproved.
Using steel output as a yardstick, mid-December showed some improvement, as domestic steel production in the week ending Dec. 15, 2012, was 1.83 million tons, for a capacity rate of 73.9 percent, according to AISI.
Also in mid-December, American Metal Market reported that up to one-half-dozen bulk cargo export orders destined for Turkey were placed at ports on the East Coast and a similar number of bulk orders bound for East Asia were placed at Pacific Coast ports.
As a result, spot buyers coming into the ferrous market in late December will pay more for their scrap, as there are few factors in North America (with the exception of Superstorm Sandy cleanup) pointing to increased supply as the calendar turn from 2012 to 2013.
Other economic statistics released in September did not point to increased economic activity or to increased scrap supplies. The Wall Street Journal reported in early December that the Tempe, Ariz.-based Institute for Supply Management’s index of manufacturing activity fell to 49.5, which the Journal called “the lowest level in more than three years.”
Text accompanying the report again points to the so-called fiscal cliff as causing many manufacturers to adopt defensive positions toward output levels.
Another report released in December raises doubts as to whether the public infrastructure segment can be of much help to manufacturers. Ferrous scrap dealers who sell to rebar and structural mills also may be disappointed to hear that much-needed highway and bridge repairs are likely to remain underfunded, according to the report from market research firm SBI Energy, Rockville, Md.
A news release announcing the report states “there is a growing disconnect on both the federal and state levels between the amount of money being generated from fees paid by users of the U.S. road system and the amount of money required to maintain and expand that system.”
The research firm says the trend toward more fuel-efficient automobiles and alternative-energy vehicles also has created a reduction in fuel use, thereby reducing the amount of gasoline tax revenue.
According to “The U.S. Road, Bridge & Tunnel Construction Market” study from SBI Energy, as long as state and federal governments refuse to increase their respective gas taxes or implement other user-based funding schemes, long-term funding prospects are “bleak.”
The Federal Highway Trust Fund (HTF) is the primary vehicle through which the federal government collects and transfers money to the states to fund roadway construction. The HTF operates as a pay-as-you-go system and is largely funded through taxes on gas and diesel fuel, with the collected funds then transferred to the states through multiyear transportation bills.
“Since 2008, the federal government has had to inject $32.1 billion dollars to maintain solvency of the HTF, and the Moving Ahead for Progress in the 21st Century Act (MAP-21), passed mid-year 2012, transfers an additional $18.8 billion into the HTF through fiscal year 2013 and fiscal year 2014,” says Norman Deschamps, SBI Energy analyst and author of the study.
Globally, the Persian Gulf region, which absorbs much of the steel made by Turkish electric arc furnace mills, is expected to post 5.6 percent GDP growth in the final quarter of 2012.
According to a report prepared by the Institute of Chartered Accountants in England and Wales (ICAEW), United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait—the six nations of the Gulf Cooperation Council (GCC)—are expected to reach that growth rate thanks to high oil prices and considerable government infrastructure spending.
In late November, the rating agency Fitch predicted slower growth in the GCC region in 2013 compared with 2012. However, the rating agency also said it forecasts that high oil prices and production will help “provide a supportive backdrop for another year of solid nonoil growth” in the region.
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