Global Ferrous Report: Sinking Feeling

Scrap traders observe declining markets.

July 18, 2012
RTGE Staff

As the Bureau of International Recycling (BIR) Ferrous Division met in Rome in late May, the declining markets were just beginning to become evident to scrap traders who offered market reports there.

After more than half a year of relatively smooth waters, rough waters returned to the ferrous scrap market in June in the form of price drops in the $65 per ton range.

U.S.-based steel mills buying on the spot market in late May and early June paid from $50 to $65 less per ton for ferrous scrap compared to the month before, according to the monthly averages issued by the Raw Material Data Aggregation Service (RMDAS) of Management Science Associates (MSA).

At the BIR World Recycling Convention, metals traders largely expressed optimism about global demand for scrap in the long term, but pointed to several immediate concerns.

“Many producers in the steel and metals sector are considering [having] prolonged summer breaks,” warned Anton van Genuchten of Netherlands-based Reukeuma Recycling Alliance BV regarding conditions in Europe. “Consumers, except in Germany, are scared and not spending,” he added. “French and Italian car producers are hit hard; their [sales] have decreased by up to 30%.”

Tom Bird, who works for Van Dalen Recycling in the U.K., said purchases from Turkish mills in the first half of 2012 have at times occurred “at levels that disappointed.” Bird added, “The first five months of 2012 have been challenging.”

Blake Kelley, who is based in the Sims Metal Management office in New York, spelled out tight scrap supply conditions in North America, but noted that there were demand concerns on the horizon, including “the situation in Greece, a Chinese economic ‘slowdown,’ sputtering growth in India [and] excess steelmaking capacity.”

Hisatoshi Kojo of Japan’s Metz Corp. similarly painted recent market conditions in a positive light, but warned of problems looming that could affect ferrous scrap pricing.

“Due to the downturn of new export business, a sluggish steel product market and European economic malaise, higher prices seem unlikely and most scrap dealers are running their yards with minimum stock levels,” he stated.

With prices dropping in an already tight supply environment, flows into scrap yards will remain a source of concern for processors and traders. In the U.S. in late May, Kelley described conditions consisting of “severe competition for unprepared scrap, as dealers are forced to reach out further to find supply volumes.”

Steel mill output, a natural place to look when determining why prices are falling, has not declined at any significant level in the United States. According to the American Iron and Steel Institute (AISI), Washington, weekly domestic raw steel production in mid-June was 1.9 million net tons at a capability utilization rate of 76.2%. That’s 1% higher than the output level during the comparable mid-June week of 2011 and down just 0.2% (4,000 tons) from the previous week in June 2012.

And looking at falling worldwide demand as a potential reason for falling prices, the Brussels-based World Steel Association (Worldsteel) has reported that global steel output increased by more than 2 million tonnes in May compared to the prior month.

China kept churning out steel in May, with its production of 61.2 million tonnes surpassing April’s total of 60.6 million tonnes.

A region that moved backward in its steel output in May was South America, with Brazil’s output declining from more than 3 million tonnes in April to 2.9 million in May. Argentina and Venezuela also produced less steel in May compared to April.

In beleaguered Europe, steel production in May increased by about 400,000 tonnes compared to April, with steelmakers in Germany accounting for one-fourth of that increase.

Although ferrous scrap purchases in Turkey were described by Bird at the BIR as at times “disappointing,” that nation’s steel output rose by a few thousand tonnes in May, reaching the 3 million tonne mark for the month.

Also of concern in Europe has been stagnant industrial production and declining demand for big ticket household goods. When releasing its May 2012 passenger car registration statistics, the Brussels-based European Automobile Manufacturers Association (ACEA) noted, “In May, demand for new passenger cars in the EU was down for the eighth consecutive month.” The May 2012 registration total was down by 8.7% compared to May 2011.

The largest EU nations “faced contractions ranging from 4.8% in Germany, to 8.2% in Spain, 14.3% in Italy and 16.2% in France. Only the U.K. posted growth (+7.9%),” according to ACEA.

Sergio Marchionne, president of the ACEA and chief executive officer of Italy-based FIAT S.p.A., urged European leaders to act to bolster the industry, in particular by opening up export markets by addressing tariffs imposed by other nations. “We in Europe cannot just stand aside and watch developments take their course,” Marchionne stated in an early June news release.

The decline in industrial production in Europe has affected both scrap consumption and generation. Should ferrous scrap export markets rebound in July or soon after, those export opportunities will be limited for European shippers if scrap arisings remain paltry.

Economic conditions in export destinations Turkey and China showed only a few signs of trouble as of late June. In China, that nation’s minister of commerce gave a briefing in June. According to a Bloomberg News summary of the presentation, Shen Dayang indicated that China’s trade growth was increasing in mid-2012, loan activity increased in May and an interest rate cut in June was likely to further stimulate economic activity. In a late June Financial Times article, reporter Stefan Wagstyl noted that some financial analysts are pointing to a Turkish current accounts deficit of 10% of GDP as a possible red flag.

A banker contacted for the article said Turkey’s government remains in good standing with multi-national banks, and government debt as a percentage of GDP (just 40%) is lower than that of many other nations.

Concerns in the leading scrap destination include Turkish lira currency fluctuations and any spillover effects from the Eurozone turmoil.