A scarce commodity

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Low scale prices and spells of nasty winter weather are playing parts in creating a relative scarcity of obsolete ferrous scrap.

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March 2, 2016

Low scale prices and spells of nasty winter weather are playing parts in creating a relative scarcity of obsolete ferrous scrap flowing into scrap yards across America.

The struggles on the supply side appear to have helped put a floor on ferrous scrap pricing, combined with domestic steel output figures that finally are demonstrating positive momentum.

Recyclers report January and February scrap flows that some say are down as much as 20 percent compared with early 2015. The notion that a dwindling supply of obsolete scrap is the main culprit is reinforced by the role reversal between prime grades and shredded scrap.

AMM Midwest Scrap Index, No. 1 Busheling (blue circles): All prices are effective the 10th of the month or the following Monday if the 10th falls on the weekend. RMDAS Ferrous Scrap Price Index (black squares): Per gross ton for No. 2 shredded scrap, defined as 0.17 percent or greater copper content, effective the 20th of each respective buy month.

In January and February 2016 in transaction pricing gathered by MSA Inc.’s RMDAS (Raw Materials Data Aggregation Service), shredded scrap has fetched more per ton than the prompt industrial composite grade.

In February, RMDAS No. 2 shredded scrap fetched $201 per ton on average in the United States, $6 per ton more than the average $195 paid for the prompt industrial grades MSA tracks.

Shredded scrap began pulling even with prompt grades in late 2012 and in 2013. The values were very different in late 2011, both in the price of ferrous scrap overall and in the difference between the prompt and shredded grades.

In its December 2011 pricing summary, RMDAS showed domestic mills paying an average of $494 per ton for prompt grades and $442 per ton for shredded scrap. That signified a premium of $52 per ton for prompt scrap, or 11.75 percent.

Operators of shredding plants have been saying for some time that the density of their product and technological upgrades that are improving shred’s chemistry have made it a premium product.

Whether thanks to improved operating techniques, wider agreement by melt shop managers that shred density is optimal, the scarcity of shredder feedstock in the current market or some combination of the three factors, shredded scrap now sells at a premium.

The RMDAS February price figures also indicate stable pricing in early 2016, with national averages for the three main grades changing in value by only $4 per ton or less. No. 1 heavy melting steel (HMS) lost $4 in value, while shredded scrap gained $2 per ton, and the prompt composite index rose by $1.

In February, RMDAS No. 2 shredded scrap fetched $201 per ton on average in the United States, $6 per ton more than the average $195 paid for the prompt industrial grades MSA tracks.

Scrap processors would prefer to see prices stabilize or rise not because of diminished supply but instead because of a demand resurgence. They are receiving some good news on that front.

Weekly statistics gathered by the Washington-based American Iron and Steel Institute (AISI) indicated in mid-February 2016 that output at domestic mills was rising on a weekly basis, with a slight uptick in the national mill capacity rate.

In the week ending Feb. 13, 2016, domestic steel production was 1.703 million net tons at a capacity rate of 72.8 percent. That output figure is up by 1.1 percent compared with the week before, when production was 1.685 million tons and the capacity rate was at 71.9 percent.

Unfortunately, the most recent weekly figure is almost identical to the 1.705 million tons of output in the week ending Feb. 13, 2015 (one year ago), meaning domestic steelmakers still are trying to regain market share lost to steel imports during the past two years.

In an article AISI contributed to this issue of Recycling Today (see “Crisis Level,” starting on page 70), the organization reports that shipments of steel from domestic mills in 2015 stood at about 86 million tons, nearly a 12 percent decrease over what American steel mills shipped in 2014.

The organization’s CEO and President Thomas J. Gibson and its board Chairman Chuck Schmitt of steelmaker SSAB Americas express optimism that new federal legislation designed to help collect antidumping and countervailing duties on imported steel will help domestic mills regain that lost market share.

Ideally, steelmakers and scrap processors alike will have a national economy, including a construction sector, that will consume and demand large amounts of finished steel.

In the article “Guessing Games,” beginning on page 132, Ken Simonson of the Association of General Contractors (ACG) expresses conditional optimism for the building sector in 2016.

He calls residential construction “the most promising sector” in 2016, with apartment construction particularly strong. “Multifamily construction (almost entirely rental units, with very few condos or co-ops outside of Florida and New York) has increased at double-digit year-over-year rates since September 2011, though growth has decelerated in 2015,” he writes.

Some nonresidential sectors also are entering the busy spring and summer construction season with positive momentum.

Good news on the infrastructure spending front arrived in December 2015 when President Obama signed a five-year highway funding bill—the first of its kind in more than a decade.

Additional RMDAS (Raw Material Data Aggregation Service) pricing from Pittsburgh-based Management Science Associates (MSA) is available on the Recycling Today website at www.RecyclingToday.com/RMDAS.

The American Metal Market (AMM) Midwest Ferrous Scrap Index is calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The AMM Scrap Index includes material that will be delivered within 30 days to the mill. Spot business included after the 10th of the month will not be included. The AMM Ferrous Scrap Export Indices are calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The detailed methodology is available at www.amm.com/pricing/methodology. *FOB New York, in metric tons; **FOB Los Angeles, in metric tons.