Editor's Focus

Did ferrous scrap prices hit the most recent cycle’s peak in January at (using American Metal Market’s pricing) about $120 per ton?

Based on subsequent pricing trends, that appears to be the case. If so, that peak is not as high as many traders and observers would have predicted, based on the hungry appetite for melting units by electric arc furnace (EAF) steelmakers around the world.

Usually when fundamental changes occur to an industry, there is more than one reason driving that change. If in fact the ferrous scrap price ceiling has been lowered, then—as is usually the case—there is almost certainly more than one reason.

Among the leading candidates nominated as factors are the small world theory, the alternative iron units factor, and a suggested boost in buy-side knowledge and practices.

The information age—exemplified not only by e-commerce and Internet research, but also by the long-standing telephone network connecting brokers, dealers and buyers—has made it increasingly easier for mill buyers to shop for scrap on every continent on the globe. The Interstate highway system, the inland waterway system, the freight rail network and ocean-going vessels seeking full cargo loads have also helped take away some of the advantages of looking strictly at local sources of scrap for most consumers.

The smaller world created by improved communications and transportation systems is regarded as giving an advantage to buyers of all manner of goods and services—including scrap metal.

Makers of direct reduced iron (DRI), pig iron and other alternative iron units—many of them with plants located across the ocean from North American steelmakers—have also benefited from the “smaller world” of the year 2000. Scrap processors throughout the U.S. report competing with imported DRI and pig iron as charge material at mills that have been long-time customers.

Many EAF steelmakers are reluctant to say just how much of their charge can be converted from scrap to substitutes such as DRI and pig iron, but many scrap processors believe that that percentage must be rising, based on the amounts of alternative iron units they have seen entering mill facilities.

With more choices due to geography and alternative materials, steel mill buyers may also be just now learning how to best play these markets off of one another to secure the best pricing for their feedstock. As one ferrous processor puts it, “they’re better at buying now, there’s no doubt about it.”

When blast furnaces using 10% or less scrap as charge were the primary consumers buying scrap, few steel mills invested the time or energy to maximize their scrap buying margins. But as scrap-reliant EAF operations have emerged and matured, they have developed increasingly sophisticated means of buying scrap and scrap alternatives.

Experience is the best teacher, the old adage goes, and there are now scrap buyers at EAF steelmaking companies who have learned from their successes and mistakes made over a two-decade period.

With more information at their fingertips, with an entire world in which to shop, and with a choice of materials beyond the ferrous scrap generated in the same ZIP code, ferrous scrap buyers will be increasingly vigilant about finding whatever bargains will allow them to keep their feedstock costs down.