Mixed signals chracterize ferrous market

Earlier this decade, the recycled-content steel sector experienced a profitable rebound from the COVID-19 era, garnering profits that, by some measures, also were shared by ferrous scrap recyclers.

Most of the record profits were in 2022, but electric arc furnace (EAF) steelmakers by and large retained profit margins last year and have continued to do so into 2024.

Financial results of various metals recycling firms, however, show their profit margins have receded. Heading into a spring season when ferrous scrap prices sometimes rise, a boost in the value of their inventories likely would be welcome.

Less-than-stellar news

When Portland, Oregon-based metals recycler and steelmaker Radius Recycling Inc. reported a net loss of $34 million in its second quarter that ran from Dec. 1, 2023, to Feb. 29, the company pointed the finger squarely at unprofitable conditions.

“Market conditions during the second quarter remained challenging as tight supply flows for recycled metals and unusually wet winter weather impacted sales volumes and metals spreads for both recycled metals and finished steel,” Radius says.

In its second quarter, Radius’ ferrous scrap sales volumes declined by 15 percent compared with the prior quarter, with the company citing lower supply flows and delays of certain bulk shipments at the end of the quarter.

“After strengthening in the early part of the quarter driven by restocking, market conditions for ferrous recycled metals softened due to lower global demand, including as a result of continued elevated levels of Chinese steel exports,” the company says.

Commenting on an industry that is nothing if not cyclical, Radius CEO Tamara Lundgren says, “While near-term market conditions for recycled metals are challenging amid cyclical headwinds, we continue to move forward with our strategic initiatives to strengthen our company and position ourselves to benefit from an improvement in market conditions and positive structural demand tailwinds.”

Australia-based global recycling firm Sims Ltd., which has a network of facilities in the United States, reported the slimmest of profits in the second half of last year.

“Challenging market conditions prevailed across all metal segments, with variations observed between, and within, geographic regions,” Stephen Mikkelsen, Sims group CEO and managing director, said in February when looking back at late 2023.

In its late 2023 global operations, Sims’ metal trading margin decreased by 2.6 percent, or 5.4 percent in constant currency, which the company says reflects challenging trading conditions. The trading margin for the period was 18.4 percent compared with 20.4 percent in the prior six months.

Charlotte, North Carolina-based EAF steelmaker Nucor Corp., meanwhile, predicts earnings per share in the first quarter of 2024 will exceed the prior quarter.

However, in providing first-quarter guidance, Nucor, which also operates the David J. Joseph Co. network of scrap yards, says that business unit has not been a sizable profit contributor.

“We expect earnings in the raw materials segment in the first quarter of 2024 to be comparable to the fourth quarter of 2023 as improved performance of our direct-reduced iron facilities is offset by lower margins at our scrap processing operations,” the company says.

An unclear landscape

Scrap supplies in the U.S., as characterized by the Radius earnings report and a Midwestern recycler Recycling Today contacted, have not diminished to a point that could prompt a price rebound.

“Aside from a 10-day winter storm and cold snap in January where scrap flow slowed up a little, we saw regular flow as if winter never came,” the Midwestern processor tells Recycling Today.

When determining how ferrous scrap demand and supply could affect the market price this spring and summer, statistics paint an unclear picture.

The construction sector has a major influence on domestic scrap supply and demand. Construction and infrastructure projects consume recycled-content steel, while demolition projects can provide a desired flow of scrap.

Throughout the postpandemic restrictions rebound, construction activity has been steady to strong, spurred on in part by federal and state government spending designed to stimulate economic activity.

As of this spring, the Midwestern scrap processor says demolition work tied to that activity has had an effect on scrap generation, but not an overwhelming one.

“It’s definitely a mixed bag,” he says of the pace of demolition work in the metro regions where his company operates. “But we do have some decent volume demolition projects on the go at the moment.”

Data from groups like the Virginia-based Associated General Contractors of America (AGC) have reflected busy 2023 and early 2024 project books.

The AGC reports construction spending, not adjusted for inflation, totaled more than $2.1 trillion at a seasonally adjusted annual rate this January. While that figure is 0.2 percent below its calculated December 2023 rate, it is 11.7 percent above the January 2023 level.

However, the Dodge Momentum Index (DMI) calculated by the Bedford, Massachusetts-based Dodge Construction Network points to a looming lack of new projects in the U.S., while its statistics for February indicate an 8 percent decline in new construction activity.

In February, project starts in the government-aided infrastructure nonbuilding sector fell by 3 percent month on month, while residential project starts fell by 2 percent, according to Dodge.

The DMI, a monthly measure of the value of nonresidential building projects known by Dodge to be entering planning stages, fell 8.6 percent in March to 164.

That is an encouraging figure compared with the baseline 2000 index of 100, but it falls from a February DMI of 179.5. “Over the month, commercial planning fell 3.2 percent and institutional planning dropped 17.2 percent,” Dodge says.

If domestic demand for steel remains static at best, ferrous scrap processors understandably could be looking overseas for a market boost.

The long-distance X factor

Global aspects of the steel recycling market are felt in some months more than others, though processors with facilities near the nation’s largest ports experience the effects on an ongoing basis.

Last year, approximately 13.6 million tons of ferrous scrap were exported from the U.S. According to the U.S. Census Bureau, the top recipients of U.S. ferrous were Turkey (3.86 million metric tons, or MMT), Mexico (2 MMT), India (1.58 MMT), Bangladesh (1.35 MMT) and Taiwan (1.12 MMT).

Appetites can shift, with the economic health of the recipient nation a leading factor. More recently, trading patterns affected by sanctions against Russia, a lack of access to U.S. dollars in Pakistan or attacks on cargo vessels in the Red Sea have become factors.

Recent reporting by Davis Index indicates imported scrap demand from the Indian subcontinent is set to rebound this spring thanks to India starting a new fiscal year April 1, giving access to new corporate budgets.

Turkey has experienced volatility tied mainly to persistent double-digit inflation. Nonetheless, the country’s EAF mills continue to melt scrap and provide rebar and other steel products to the wider Middle East region.

As U.S. mill scrap prices have trended flat-to-downward so far this year, ferrous traders will be keeping a sharp eye on economic conditions not only in the U.S. but in purchasing countries like Turkey, India and Bangladesh.

The author is senior editor with the Recycling Today Media Group and can be reached at btaylor@gie.net.