After a difficult 2015 and a rough start to 2016, an early April price boost brought some good cheer to ferrous scrap recyclers just as they gathered in Las Vegas for the Institute of Scrap Recycling Industries (ISRI) 2016 Convention & Exposition. Panelists at the convention’s Ferrous Spotlight session, however, indicated there are still problems afflicting the steel and ferrous scrap sectors.
Namik Ekenci of the Turkish Steel Exporters Association, based in Istanbul, said the scrap market paid the price for iron ore’s ongoing price drop in 2015, as steelmakers in Turkey and elsewhere scaled back on their melt shop activities and instead bought low-priced steel billet to send directly to rolling mills.
Scrap prices that had remained above iron ore prices “put electric arc furnace (EAF) mills in a very difficult position,” remarked Ekenci, who said many responded by importing billets and slabs produced with cheaper iron ore in China, Russia and the Ukraine.
Ekenci said Turkish EAF mills are not subsidized and “operate on small profit margins” and will continue to turn to imported billets and slabs if scrap prices are considered too lofty. Importing billets “is profitable for us” he said on behalf of Turkish steelmakers.
Although low prices have caused ferrous scrap flows to subside considerably, Dave Keeling of the Steel Recycling Institute (SRI), Pittsburgh, said automobiles are likely to be recycled near their 2014 95 percent rate and appliances may remain close to the 88 percent rate posted in 2014.
Domestic steelmakers had difficulty competing with imported steel throughout much of 2014 and 2015, but Keeling says the numbers show efficiency in the U.S. is not the problem. The American Iron and Steel Institute (AISI), parent organization of the SRI, has calculated that American steelmakers now use 1.9 labor hours per ton of steel produced, compared to 10.1 labor hours in the 1980s.
“2015 was a wake-up call kind of year,” Spencer Johnson, a New York-based risk management consultant with INTL FC Stone, said about the ferrous scrap market in the United States. He added, “A [rapid] $100 per ton drop can cause a real sea change.”
Johnson urged ferrous scrap recyclers to consider the new hedging opportunities being made available in the market, saying, “Risk management is an underappreciated aspect of the ferrous scrap business.”
He said the LME steel scrap contract is ideal for recyclers in the eastern U.S. who ship scrap to Turkey or who otherwise compete in the same market. Recyclers farther west, on the other hand, may be better served by hedging against the Nasdaq’s U.S. shredded scrap contract.
The ongoing integration of the ferrous and nonferrous scrap industries may well be the critical factor in allowing one or both of the contracts to catch on with recyclers—unlike many similar contracts introduced in earlier decades. “The industry can borrow a lot of the same concepts and knowledge it uses on the nonferrous side for ferrous hedging,” said Johnson.
A key factor, said Johnson, is for the industry to find a benchmark price that grows to be as trusted as the COMEX copper price. He selected The Steel Index (TSI) U.S.-to-Turkey price as one candidate.
Regarding 2016, Ekenci says that in Turkey—which represents the number one export market for U.S. ferrous scrap—the year “has started better than 2015” but that it likely “is not going be a boom year.”
Ekenci also stated the quality of U.S. scrap “is the best in the world,” but in the past couple of years the presence of nonmetallic impurities has increased.
Johnson noted that domestic steel prices have been rising in the spring of 2016, possibly in response to tariffs that have slowed down the flow of imported steel. “We’d rather see a more demand-driven rally,” he commented.
The ISRI 2016 Convention & Exposition was April 2-7 at the Mandalay Bay Convention Center in Las Vegas.