BIR World Recycling Convention Round-Table Sessions: Tariffs propel steel pricing

BIR World Recycling Convention Round-Table Sessions: Tariffs propel steel pricing

Speakers examine the effect of U.S. tariffs on steel imports.

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October 9, 2018
DeAnne Toto

Above: Lee Allen, a metals analyst with Fastmarkets Metal Bulletin,
was the guest speaker during the BIR Ferrous Division meeting. 

The U.S. section 232 tariffs on steel imports where the main topic of discussion during the Ferrous Division meeting at the Bureau of International Recycling (BIR) World Recycling Convention Round-Table Sessions. The event took place Oct. 6-7 in London.

Ferrous Division interim President Tom Bird of Chiho Environmental Group, Hong Kong, began the meeting by saying the world has been addressing a number of interesting challenges since the division last met in Barcelona in May. At that time, those in attendance were optimistic that the trade war between the U.S. and China would not escalate further; however, Bird said, that optimism was short-lived.

In addition to the trade war between the U.S. and China, Bird mentioned the “hard stand” the U.S. has taken in regard to imports of finished steel from Turkey. In his commentary in the “BIR World Mirror: Ferrous Metals” dated September 2018, Bird writes that these trade tensions have “led to huge uncertainty and tremendous pressure on currencies.”

In his “World Mirror” commentary, Bird expands on currency pressures, writing, “Meanwhile, the Turkish lira has been under particular pressure, creating significant risks for the country’s mills.”

Despite the uncertainty Bird sees in the market, he said pricing and markets for ferrous scrap have improved.   

Figures presented by Rolf Willeke, statistics advisor to the BIR Ferrous Division, helped to illustrate that point.

Global crude steel production for the first six months of the year increased by roughly 4.6 percent compared with the same period in 2017, reaching 881.5 million metric tons, or 971.7 million short tons, Willeke writes in the “World Mirror.” He cites figures from the World Steel Association (Worldsteel), which, like the BIR, is based in Brussels.   

China accounted for roughly 451 million metric (497 million short) tons of that production, he told BIR Ferrous Division meeting attendees, which is more than 50 percent of global production.

China's steel scrap consumption in the first half of 2018 increased 41 percent*, Willeke added, noting that steel scrap consumption in European Union during that period was almost unchanged.

In the September edition of the “World Mirror,” Willeke writes that China’s increased use of ferrous scrap is because of the stricter environmental quality and air emissions standards the Chinese government has imposed on the steel industry. “To meet these new thresholds and in order to avoid production restrictions, most BOF (basic oxygen furnace) mills have actively increased their scrap input, with their steel scrap/crude steel ratio said to have been 20-25 percent,” he writes. “In addition, many new EAFs (electric arc furnaces) are being installed or are in the pipeline for the near future. As a result, further investments in steel scrap processing are planned, especially in shredder capacity.”  

Bird said the ferrous scrap market in the E.U. was relatively stable through August but fell in September in response to Turkey retreating from market when the U.S. levied tariffs ranging from 25 percent to 50 percent on the country’s steel.

He added that it would be difficult to predict the health of the ferrous scrap sector in 2019 because of the number of external factors, such of tariffs, at play.  

George Adams of SA Recycling, which is headquartered in California, said the ferrous scrap industry in the U.S. has been on a “wild ride.” He added, “No one expected a 50 percent tariff on Turkey.”

In the “World Mirror,” Adams writes that the tariff “put a quick stop to U.S. imports of such steel and a drop in scrap prices to Turkey,” with pricing for No. 1 HMS (heavy melting steel) falling to $300 per metric ton. He adds that the price rebounded fairly quickly, however.

Adams adds that a relatively quick resumption in buying by the Turkish mills didn’t stop downward pressure on the U.S. scrap markets in September. He writes that ferrous scrap prices decline by $20 per metric ton in August and September for most grades in most regions.   

Lee Allen, a metals analyst with Fastmarkets Metal Bulletin, was the meeting’s guest speaker. He said some people thought steel and scrap prices would fall as a result of the Section 232 tariffs imposed by the United States. However, steel prices skyrocketed even before the tariffs were applied.

While rebar shipments into the U.S.  dropped in response to the tariffs, HRC (hot-rolled coil) shipments increased, Allen said.

He said iron metallics prices from January 2017 through September of this year increased 20.3 percent, while ferrous scrap pricing increased by 24.4 percent in the same period. U.S. blast furnace output grew at a faster rate than EAF output during the first eight months of 2018, he added.

Movements show that U.S. scrap market prices largely depend on actions out of Turkey. According to Allen’s presentation, a 91.6 percent correlation exists between Pittsburgh HMS 1 and U.S.-origin HMS 1 and 2 from January 2016 through September 2018.

Allen said the tariffs may help steel output outpace industrial production in the E.U. and U.S., with scrap prices likely increasing as 2019 begins.

The long-term outlook, he said, depends on the political will to keep up the tariffs. “As long as they remain in place, steel prices should remain high,” Allen added.

*The BIR reported Oct. 18 that a technical problem led to erroneous figures being reported for Chinese steel scrap consumption for the first half of the year. According to these incorrect figures, China's scrap consumption increased 105 percent when in actuality it increased 41 percent from 62.2 million metric tons in the first half of 2017 to 87.7 million metric tons in the comparable period this year.