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Ferrous scrap prices continue their upward trend in April.

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May 8, 2018
Brian Taylor
Photo: Adobe Stock

President Donald Trump was embraced by some voters because he expressed a willingness to follow a new course when it comes to United States global trade policies.

In his first 15 months as president, Trump has stayed true to some of his campaign rhetoric in terms of retreating from trade policies he deems to be “bad deals,” and the metals sector has been at the forefront in the new policy effort.

A series of U.S. tariffs and global countermoves has caused metals producers and scrap buyers and sellers to make rapid adjustments to the new circumstances. The American steel sector spent the first quarter of 2018 in part expressing confidence that the time was right to add new capacity to serve its North American customers.

The national interest

America’s scrap industry largely has been in line with most of the rest of corporate America for the past three decades in expressing its support for global trade as being a boon to American economic health.

Some have been critical of the global trading regimen, however. As a candidate, Trump tapped into the sentiments of people who considered the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) to be factors in an economic shift that had drained manufacturing capacity and jobs from America.

The debate may be macroeconomic in nature, but steelmakers and the ferrous scrap recycling companies that supply them have been on the front lines in the trade battle that has ensued during the Trump presidency.

In early March 2018, one of the president’s first trade-related moves was to use Section 232 of the Trade Expansion Act of 1962 to impose tariffs on imported steel and aluminum.

The president took this action after considering a report prepared by the U.S. Department of Commerce, which is headed by Wilbur Ross, whose career has included leadership positions in the steel industry.

Following that announcement, numerous exemptions have been granted to steelmakers in nations that resented being labeled as threats to the national security of the U.S. The tariff has stayed in place relative to China, a nation considered by many critics as hosting state-owned enterprises that are producing excess steel that is placed onto the global market.

For scrap recyclers, a steel trade dispute that is focused on China would cause some disruption if it was prolonged. Through the first 11 months of 2017, China ranked fourth as an overseas buyer of ferrous scrap, behind only Turkey, Mexico and Taiwan.

Thus, if a trade war with China resulted in a reduction in that business, it would interrupt more than 1 million tons’ worth of ferrous scrap trading, based on 2017 figures. (The trade dispute also has affected the flow of shredded nonferrous scrap, disrupting that part of the business for auto shredding plant operators.)

Protecting the domestic steel industry with tariffs or import duties is not a new phenomenon. President George W. Bush placed tariffs ranging from 8 percent to 30 percent on imported steel throughout 2002 and 2003. Those tariffs were lifted after the WTO ruled it would impose a significant penalty on the U.S. if it kept them in place.

In the wake of the Section 232 announcement in early March, ferrous scrap recyclers received some good news in the form of several steelmakers announcing plans to restart idled capacity, to add capacity or to build a new steelmaking facility in the U.S. While not all the steelmakers cited the Section 232 measure as a factor in their decisions, several did.

New and revived furnaces

*Mill buying price per ton for No. 2 shredded scrap, 0.17 or greater copper content; Source: MSA Inc. RMDAS service, http://rmdas.msa.com.

Within the first two weeks of the Section 232 steel tariff announcement, two steelmakers announced capacity decisions they tied directly to the new tariff.

One week after the Trump announcement, Pittsburgh-based U.S. Steel announced it planned to restart one of two blast furnaces (the “B” blast furnace) at its integrated steelmaking complex in Granite City, Illinois, which is near St. Louis, later that month.

The additional capacity “will support anticipated increased demand for steel in the U.S. from the pending action announced by President Donald J. Trump on March 1, 2018, as a result of the U.S. Department of Commerce Section 232 national security investigation on steel imports,” U.S. Steel stated as part of its announcement.

“Our Granite City Works facility and employees, as well as the surrounding community, have suffered too long from the unending waves of unfairly traded steel products that have flooded U.S. markets,” said U. S. Steel President and CEO David B. Burritt. “The Section 232 action announced by President Trump recognizes the significant threat steel imports pose to our national and economic security.”

Just a few days later, Canton, Ohio-based Republic Steel announced plans to reopen its facility in Lorain, Ohio. The facility includes an electric arc furnace (EAF), casters and rolling mills.

Republic stated it was prepared to respond quickly to an anticipated uptick in demand for its steel in the United States. The company currently has active capacity at its Canton melt shop, and restarting its facility in Lorain would allow it to provide more than 1 million tons of new production capacity to support the special bar quality (SBQ), coil and seamless tube round markets.

The company indicated it expected to reopen the steel mill later in 2018 after hiring and training new employees and restarting its idled equipment.

“Republic is more than prepared to support market demand that has been previously supplied by imports,” said Jaime Vigil, Republic president and CEO. “We maintained our Lorain facility while it’s been idled, waiting for the opportunity to restart, and it appears that time is finally here,” he adds.

America’s largest EAF steelmaker, Charlotte, North Carolina-based Nucor Corp., issued a capacity announcement of its own a few days later, revealing its intention to build a rebar “micromill” in Frostproof, Florida, in the central part of the state east of Tampa.

The $240 million EAF facility is the second rebar micromill Nucor will construct. In November 2017, Nucor announced a rebar micromill project in Sedalia, Missouri.

“We are building this rebar micromill in a great and growing market where demand is strong and there is currently an abundant supply of scrap, a good portion of which is handled by our scrap business, The David J. Joseph Co. (DJJ),” John Ferriola, chairman, CEO and president of Nucor, said of the 350,000-ton-per-year EAF mill.

Before March was over, one more potential domestic boost for ferrous scrap consumption was announced, this time by JSW Steel, a U.S.-based subsidiary of India’s JSW Group.

The company’s late March announcement involved its signing of a memorandum of understanding (MoU) with the state of Texas regarding an investment of $500 million (in phases) to expand its steelmaking complex in Baytown, Texas.

The investment will be used to expand the company’s plate and pipe mill unit in Baytown, which is near Houston. The proposed project will include the installation of an EAF that will use ferrous scrap as a raw material.

Since purchasing the steel mill in 2007, JSW indicates it has been operating at around 30 percent of capacity, which the company says it hopes to rectify with the investment.

When it comes to demand, the ferrous scrap market may be undergoing some shifts, but scrap as a steelmaking feedstock seems to be on good footing. As is often the case, issues of supply and logistics have been competing for attention in 2018.

“The Section 232 action announced by President Trump recognizes the significant threat steel imports pose to our national and economic security.” – U.S. Steel CEO David B. Burritt

Connection problems

Demand for scrap from overseas and domestic markets kept ferrous scrap pricing buoyant and steady in the first quarter of 2018.

That pricing, in turn, kept scrap supplies anywhere from “adequate” to “outstanding,” depending on the point of view and specific location of U.S. scrap recyclers.

Winter weather, as it typically does in the first quarter, interrupted supply in some market regions. Nonetheless, one recycler in the Mid-Atlantic region (which suffered some blizzards in the winter of 2017-2018) described his shredder feed volume as “adequate” in the first quarter, though he also indicated his demo scrap volumes declined in the usual seasonal manner.

“Scrap flow, I think, has slowed down a little due to weather; ’tis the season, though,” a scrap processor in the Upper Midwest said in February. That region experienced waves of snow in early 2018.

The ferrous sector, even as it has been buying and selling scrap in a relatively prosperous market so far in 2018, has experienced greater headaches moving product from point to point, beyond the winter weather in the northern half of the country.

“Trucking has been an ongoing issue for the last few months for us,” said the Midwestern processor. “Trucks in our area were busy hauling salt [throughout the winter].”

Recyclers are accustomed to that same circumstance during the fall harvest season, when the truck and freight rail industries concentrate on serving the agricultural sector.

In all parts of the country, finding adequate numbers of drivers has long been a challenge.

The Washington-based Institute of Scrap Recycling Industries (ISRI), based on member feedback, has identified the freight rail sector as a focus of its attention, per its “2018 Advocacy Agenda” released in mid-March 2018.

ISRI identifies the “restoration of Surface Transportation Board (STB) oversight of rail transportation of scrap” as being high on its list of priorities. According to ISRI, the STB in 2016 proposed a rule revoking its oversight of ferrous scrap shipping. “The rule is needed to protect recyclers—most of which are captive rail shippers for at least a portion of their traffic—from the railroads’ current exercise of market power,” ISRI states.

Recyclers of ferrous scrap and other materials otherwise can receive “insufficient and unsatisfactory service through the STB,” the association adds.

While ferrous scrap recyclers likely are pleased with pricing and margins in the first several months of 2018, a combination of day-to-day headaches and the potential for the market to turn likely will help them ward off complacency.

The author is editor of Recycling Today and can be contacted at btaylor@gie.net.