Profits, but also headaches

Departments - Commodities Ferrous

COVID-19-related health protocols, a competitive labor market and freight issues were ongoing headaches for processors in 2021.

January 4, 2022

Processors who sell to the domestic market closed 2021 with an early December mill buying period that saw scrap prices hold onto their gains from 30 days earlier. The soft spot in the market appeared to be on the West Coast, where prices dropped by some $20 per ton.

An absence of dramatic price plunges for most processors and traders in December means the books closed on 2021 with only a couple months where that sinking feeling was attached to declining ferrous inventory value.

Fastmarkets AMM pricing for December 2021 showed all three major Midwest Index grades staying within $2 per ton of their November averages. Buyers and sellers of prompt scrap experienced a calendar year with only two declines in pricing (September and October) for that benchmark grade, while the other 10 months involved rising or stable pricing.

As the year progressed, publicly traded scrap companies largely pleased investors with quarterly results that demonstrated healthy profits and positive comments.

Processors and traders alike, however, are unlikely to look at 2021 as a year where the living was easy. COVID-19-related health and safety protocols stayed in place in many parts of the country, a fiercely competitive labor market caused scrambles to fill positions and numerous freight issues provided ongoing headaches.

The woes on the container shipping side prompted the passing of a U.S. House of Representatives bipartisan bill designed to address aspects of the issue.

Railroad gondola cars—the workhorses of the ferrous scrap sector—remained in short supply, continuing a situation that seems nearly as old as the industry itself.

The lack of cars (specifically newer ones that appear up to the task of being loaded or unloaded) has reached critical proportions, says veteran trader and consultant Nathan Fruchter of New York-based Idoru Trading Corp.

Fruchter says some shippers are being told the arrival of additional or new cars is on a full one-year-out timeline. As things currently stand, he adds, some processors are leaving up to $50 per ton “on the table” because they cannot get sufficient cars to serve specific destinations.

Exporters who send containerized ferrous scrap overseas do not necessarily have it any better. Container freight rates soared in the fourth quarter of 2021, and availability issues can be just as frustrating.

The woes on the container shipping side prompted the passing of a U.S. House of Representatives bipartisan bill designed to address aspects of the issue.

The Ocean Shipping Reform Act, H.R. 4996, was passed by a vote of 364-60 in early December 2021 with bipartisan support.

The bill would require shipping companies to adhere to “minimum service standards” and “block them from unreasonably declining cargo.” Under the proposed legislation, shipping carriers and port operators cannot retaliate against a shipper, a shipper’s agent or a motor carrier by threatening to withhold available cargo space.

The Washington-based Institute of Scrap Recycling Industries expressed its support, stating, “This is an important first step toward addressing both the long-term unfair shipping practices employed by ocean carriers and helping to solve the nation’s supply chain disruptions that are impacting the recycling industry as well as every sector of our nation’s economy.”

In the domestic market, steel output dropped slightly (by 1.6 percent) the week ending Dec. 4, 2021, according to Washington-based American Iron and Steel Institute. Mill capacity that week dipped to 81.9 percent from 83.2 percent the prior week.

 

The minor setback occurred against a backdrop of healthy steelmaking figures throughout 2021, even though vehicle production was hampered by a lack of automotive sector microchips.

Difficulties in hiring and inflation figures not seen for many years are a concern in the automotive and construction sectors.

The Arlington, Virginia-based Associated General Contractors of America (AGC) spent 2021 voicing its concern for rising building materials prices, with steel often one of the materials gaining its attention.

AGC says the price index it tracks for steel mill products has more than doubled, rising 141.6 percent since November 2020. During the same time frame, trucking costs climbed 16.3 percent, according to the association.

In another recent analysis, AGC cast its spotlight on the labor market. “Record job openings show the industry needs still more workers as more types of nonresidential projects get started,” Ken Simonson, the association’s chief economist, comments.

An increase in nonresidential and infrastructure spending likely will add to steel and ferrous scrap demand, but having people in place to get projects on schedule is an ongoing issue, Simonson says.