When Recycling Today surveyed the ferrous scrap sector for a feature titled “Prosperity with precautions” in its May edition, that article expanded on the notion that the sector was “benefiting from consistent material flows and (to some extent) pricing but also facing looming issues that could signal trouble ahead.”
That premise proved all too true, as ferrous scrap prices plunged in the early summer months and then dropped some more in the fall. The 2019 market has been a reminder to recyclers that geopolitical circumstances can produce deteriorating conditions in commodity market prices that are beyond their control.
Sliding toward 2020
When North American recyclers gathered for ISRI2019, the annual convention and exposition hosted by the Washington-based Institute of Scrap Recycling Industries (ISRI) in Los Angeles in April, the ferrous market was fresh off a price rebound. That spike was attributed to buyers hunting for scrap after severe winter weather and an earlier price drop.
For most of the months that followed, the spring price resurgence became an increasingly distant memory as domestic buyers and export brokers alike enjoyed a classic “buyer’s market” for the ensuing months of the year.
The largely unidirectional nature of the scrap market in the second and third quarters can be seen by looking at figures from any pricing service or survey, including steel mill scrap purchasing figures collected by Pittsburgh-based Management Science Associates Inc. (MSA) for its Raw Material Data Aggregation Service (RMDAS).
RMDAS prices show a market where shredder operators who were accustomed to receiving from roughly $320 to $380 per ton for ferrous shred in 2018 instead had to cope with these per ton average prices in 2019: $271 in June, $252 in September and $220 in October.
The value of prompt scrap declined similarly. The RMDAS No. 1 busheling grade fell from $418 per ton in July 2018 to a national monthly average of $235 in October of this year—a loss of nearly 44 percent in value in 15 months.
Scale prices plummeted as recyclers tried to retain their profit margins, while collectively they figured that at some point demand would outpace the diminishing supply and produce a rebound.
That point occurred to the tune of around $20 per ton in November, while at press time recyclers also expressed optimism that renewed overseas buying in November would help produce a similar gain in value in December.
As one processor in the Midwest points out, the ferrous scrap market had experienced a price decline at the same time aluminum and copper scrap markets were struggling.
The fallout was becoming visible in October and November, with examples including the auction of United Milwaukee Scrap’s assets, with St. Louis-based Alter Trading Corp. reported as a bidder, and the bankruptcy of Troy, Michigan-based Rivore Metals, a scrap broker and processor that had borrowed money in 2017 and 2018 to undertake an expansion.
Over here and over there
When looking at how prices fell and why they might rebound, an assessment of the steel industry in the U.S. is always a good place to start.
Measured by output, it is difficult to place too much blame on North American steelmakers, though the output figures collected by the American Iron and Steel Institute (AISI), Washington, have shown minor degradation in the fourth quarter of this year.
However, AISI reported in mid-November that year to date through the first three quarters, steel producers had shipped out 1.6 percent more by volume compared with the same time frame in 2018—when ferrous scrap prices were much stronger.
With the U.S.’ status as the nation with the single largest ferrous scrap surplus, the export market also must be considered when prices are volatile.
“Prices for semi products, such as billets and slab, are close to or below the cash cost to produce [steel] in the Asian markets,” says steel industry analyst Becky Hites of Douglasville, Georgia-based Steel-Insights LLC. “This has caused further reduction in crude steel production, which dries up demand for incremental scrap purchases.”
Economic or political circumstances also can cause the mill sectors in entire nations to influence the U.S. ferrous scrap export market—and (seemingly) several of those have occurred this year. Hites says global economic markets have cooled because of geopolitical disruptions, with protests in Hong Kong, Paris, Barcelona, Venezuela, Bolivia, Chile, Beirut and Iran.
Turkey has at times been involved in diplomatic and trade disputes with the U.S. government, putting tariff and political pressures on Turkish mills to turn to other nations for supply. However, through the first seven months of this year, Turkey had received 2.08 million metric tons of scrap from the U.S., representing a slight increase from the 2.04 million metric tons shipped in the first seven months of 2018.
Gains and losses
Regulatory measures and tariffs have dried up China’s purchases of U.S. ferrous scrap this year. At 42,000 metric tons, China’s imports are down 91 percent from the 482,000 metric tons it imported in 2018. However, buyers in several nations have more than made up the difference in 2019, including South Korea, which is up by 355,000 metric tons, or 92 percent; Malaysia, which is up by 249,000 metric tons, or 105 percent; and Vietnam, which is up by 218,000 metric tons, or 43 percent.
Steelmakers in most nations in that region are continuing to invest in electric arc furnace (EAF) or scrap-fed induction furnace technology. However, the timing of these purchases can make or break the price in a given month. “Turkey is the flex EAF capacity and has been out of the market in recent weeks,” says Hites, commenting just before that nation restarted its buying in the second week of November.
Hites is among the observers who say scrap-fed EAF steelmaking globally remains viable, and output in that sector is stable to slightly growing. Even China, which has long protected its state-owned-enterprise basic oxygen furnace (BOF) steelmakers, is beginning to steer them toward EAF production. (The concern is that China’s government will subsidize both types of steelmaking.)
Globally, EAF output has hit a ceiling of about 30 percent during the 2010s, and few other parts of the world have matched the two-thirds of U.S. output created by EAFs. Looking forward, Hites says, “From the 2030-to-2050 time frame, crude steel production will increasingly shift to EAFs from BOFs in Europe as countries there develop ‘green’ energy sources of power.”
Ferrous scrap processors who have made it through 2019 are far more likely to take comfort in those words if their monthly prices and profit margins can trend toward the healthier side in 2020.