A Flat Landscape

Ferrous scrap pricing dipped in late November and early December, though by mid-December opportunistic buyers were back in the market, spurring a rise in demand and a return to price levels about where they were before the dip.

January 18, 2013
RTGE Staff

Ferrous scrap pricing dipped in late November and early December, though by mid-December opportunistic buyers were back in the market, spurring a rise in demand and a return to price levels about where they were before the dip.

Recyclers and analysts attributed the buying lull to a number of factors, including seasonal slowdowns and reduced output at steel mills. In many parts of the world, purchasers of steel and products made of steel ranging from multinational corporations to households hesitated to spend or invest pending the outcome of leadership changes and critical negotiations.

November brought new leadership in China, an election in the United States that points to at least two more years of divided government and continued fiscal restructuring decisions in Europe that are most often presented by bankers there as forward progress.

By mid-December, corporate stocks and security markets in many parts of the world were showing signs of bullishness that 2013 may turn out alright, with China’s leaders poised to keep government money circulating and political leaders in the United States edging toward a taxation and spending compromise.

Europe’s ability to keep money circulating through the economy still presented a source of concern as 2012 ended. Household consumers continue to either lack the confidence or disposable income to make major purchases, if new automobile registrations are any indication.

November 2012 figures compiled and distributed by the Association des Constructeurs Europeens d’Automobiles (ACEA, www.acea.be), demonstrated what that group says is 14 consecutive months of downward momentum (based on 12-months-earlier comparisons).

In November only 965,900 new passenger cars were registered in the EU and EFTA (European Free Trade Association) area, a decline of some 10% from November 2011.

A look at country-by-country figures indicates which nations are coping with austerity or other off-shoots of the financial crisis. While through the first 11 months of 2012, Germany had registered just 1.7% fewer new passenger cars and the United Kingdom’s registrations actually rose by 5.4%, Italians had purchased 19.7% fewer cars and Spaniards 12.6% fewer. The trend in France (down 13.8% for the year) is not positive either, as November’s 144,600 registrations were down more than 19% compared with activity in November 2011.

Economic statistics released in the United States in December did not necessarily point to increased economic activity or increased scrap supplies there. 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 pointed to the so-called “fiscal cliff” as causing many manufacturers to adopt defensive positions toward output levels.

For scrap recyclers in Europe or North America who can find suitable amounts of ferrous scrap to export, the Persian Gulf region that absorbs much of the steel made by electric arc furnace steel mills in Turkey is expected to post a 5.6% GDP growth rate in the final quarter of 2012.

A report prepared by the Institute of Chartered Accountants in England and Wales (ICAEW) says the six nations of the Gulf Cooperation Council (GCC) are expected to reach that growth rate in light of high oil prices and considerable infrastructure spending by their governments.

In late November the rating agency Fitch predicted slower growth in the GCC region in 2013 compared with 2012 but forecast that high oil prices and production will help “provide a supportive backdrop for another year of solid nonoil growth” in the region.

Turkey’s hunger for scrap in September 2012 helped keep the export market going in an otherwise down month. According to the United States Geological Survey (USGS), the U.S. exported just 1.64 million tonnes of ferrous scrap in September of 2012 compared to 2.09 million tonnes in September 2011.

Turkey’s purchase of 656,000 tonnes provided some 40% of the September 2012 market, and the figure was up from the 458,000 tonnes Turkey purchased in September 2011. Meanwhile, China purchased just 91,000 tonnes from the U.S. in September 2012, compared to 376,000 in September 2011.

In North America’s domestic market, the American Iron and Steel Institute (AISI, www.steel.org) reported domestic raw steel output for the week ending 8 Dec., 2012, was down 3.3% year-on-year and 0.9% from the previous week. The weekly output of 1.64 million tonnes resulted in a capacity utilization rate of 72.9%.

Using steel output as a yardstick, mid-December figures showed some improvement, as domestic steel production in the week ending 15 Dec., 2012, improved to 1.67 million tonnes for a capacity rate of 73.9%, according to AISI.

Also in mid-December, American Metal Market reported that up to half-dozen bulk cargo export orders destined for Turkey were placed 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 metal, as there are few factors in North America (with the exception of those resulting from Superstorm Sandy cleanup) pointing to increased scrap supply as 2012 turns to 2013.