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Around the next turn?

Market Reports - Ferrous

RTGE Staff March 10, 2014

The ferrous scrap market, like many other economic indicators around the world, refuses to buy fully into the notion that a sustained economic recovery has begun in earnest.

Per ton prices paid for ferrous scrap in the United States dipped by some $30 in early February despite a difficult winter in that country that has kept supplies in check. One piece of good news from the price drop is that Turkish and Asian mills and their brokers sparked at least a temporary revival of the U.S. ferrous scrap export market, which may help prices rebound.

In the depths of winter in Europe, many ferrous scrap recyclers are maintaining little optimism that 2014 as a year will be dramatically different from 2013 in terms of scrap arisings or margins on sales to scrap consumers.

“It appeared by the end of 2013 that people were putting off action or holding onto hope that 2014 will change things, but apart from the digit 3 changing to the digit 4 [on calendars], not a lot has changed,” says Diwakar Gautam of London-based brokerage Sunberg Ltd. (For more comments from Gautam and other European recyclers, see the feature story “Muddling through,” starting on page 26.)

Considering the economic climates weathered by several EU nations in the past five years, the signs of economic growth that have been reflected in some statistics as well as anticipated by forecasters at least provide hope that the spring and summer of 2014 will lead to improved scrap flows.

Among the nations showing signs of a rebound is the United Kingdom, which finished 2013 with 2.8 percent GDP growth, its fastest rate of economic growth since 2007. The 2.8 percent annual rate was enough to make the U.K.’s economy the fastest-growing in Western Europe, according to an analysis in The Telegraph.

The growth in the U.K. thus far, however, appears to be occurring primarily in the household consumer sector and has not necessarily led to the kind of active real estate development or construction that would help boost ferrous scrap arisings.

EU industrial production figures, as compiled and published by Eurostat, show December 2013 (the most recent month for which figures are available) being only a slightly more productive month in the EU 28 nations than was December 2012.

The EU’s industrial production index checked in at 96.9 in the final month of 2013, up slightly from a 96.1 index figure for December 2012. However, the 96.9 figure was actually below the November 2012 number, making it difficult to say that momentum is building in the EU’s industrial sector.

“In December 2013 compared with November 2013, production of capital goods decreased by 2.1% in the euro area and by 1.9% in the EU28,” says Eurostat in the news release accompanying its findings for the end of 2013.
 

 

Although December 2013 figures were not available at press time, construction spending also appeared to be losing momentum in Europe in the final quarter of 2013.

“In November 2013 compared with October 2013, seasonally adjusted production in the construction sector fell by 0.6% in the euro area and by 1.1% in the EU28,” Eurostat reports.

The 18-nation Eurozone fared slightly better by this measure compared to the rest of the EU, although the November decrease marked the third consecutive month of decline in both regions.

Nations bucking the trend with construction spending increases in November included Slovenia (+9.6%), Poland (+3.9%) and Hungary (+3.0%). Among EU nations with declining construction spending were the Czech Republic (-5.6%), Romania (-4.9%) and the United Kingdom (-4.0%).

Despite the tepid economic indicators, steel industry analysts are largely predicting that EU steel mills will increase their output in 2014. (See the sidebar “EU steel on the rebound?” within the Commodity Focus feature on page 27.)

Luxembourg-based ArcelorMittal reported a net loss of $1.2 billion in the fourth quarter of 2013 and a loss of $2.5 billion for all of 2013. However, the company—which produces 88 million tons of steel per year at mills located in more than 20 nations—says it sees signs of better things in 2014.

“The improvement in the overall economic situation [has] led us to re-start some selected steel growth projects,” says Lakshmi N. Mittal, ArcelorMittal’s chairman and CEO, in comments accompanying the quarterly results.

Despite the loss reflected in the fourth quarter of 2013, Mittal says the company was able to lay the groundwork for a more profitable and productive 2014. “The measures we have implemented to strengthen the business continue to yield positive results,” says Mittal. “In 2013 we delivered [an] 11% underlying increase in EBITDA [earnings before interest, taxes, depreciation, and amortization], positive free cash flow and ended the year with net debt at the lowest level since the creation of ArcelorMittal in 2006.”

The CEO of one of the world’s largest steelmakers continues, “We are cautiously optimistic about the outlook for 2014 and expect EBITDA for the full year to improve to approximately $8 billion.”

Mittal also notes that the company, which currently makes 44% of its steel in Europe, has made a major investment in North America. “We have expanded our ability to serve the growing NAFTA automotive and energy steel markets through our agreement to acquire ThyssenKrupp’s rolling mill in Calvert, Alabama,” says Mittal of a mill with an idled melt shop in the southern United States.

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