The steel and ferrous scrap industries remain cyclical, with the first quarter of 2015 providing a vivid demonstration of a down cycle. Nonetheless, presenters at the Ferrous Spotlight session of the Institute of Scrap Recycling Industries Inc. (ISRI) 2015 Convention & Exposition, held in April in Vancouver, British Columbia, said history has shown that an up cycle will follow.
“This is a cyclical business and it’s in a downturn, [but] we’ve always gotten through these times,” said Jim Wiseman of
Smart Recycling Management, Nicholasville, Kentucky. Wiseman said domestic steel mill operating rates of below 70 percent are in place even while globally iron ore mining activity keeps growing to feed Asia’s steel industry. “That has depressing [price] effects throughout the ferrous supply chain,” he commented.
Panelist Michael Coslov, the former CEO of Pennsylvania-based
Tube City IMS, expressed confidence in the ability of family businesses to weather downturns such as the current one. “The core of this business is still the independent scrap dealer,” he stated. “I see them surviving.”
In a low-price environment, Coslov said, scrap processors have few options to cut costs, as they usually do not employ extra people and already run efficient machinery. “The only way to survive, I submit, is for the owner [to pay himself less].”
Ferrous scrap pricing continues to be based on supply and demand, he said, but the priorities beyond that are more suitable for independent or family owners versus public companies. “Take care of the customer, take care of the employees and the equipment and then take care of the shareholders last. If you take care of the shareholders first, you’re going to be in trouble,” Coslov commented.
He said he does not see this down cycle lasting much longer, remarking that the “housing hangover is nearly cured” after lasting about eight years. He said if he was in the scrap business currently, he would set aside 10 percent of his inventory and wait for the price to rise. “I see it turning around.”
Panelist Jason Schenker of
Prestige Economics, Austin, Texas, expressed a similar sentiment regarding near-term pricing. “I think things will go up from here,” he commented. “Global [monetary] policies and where we’re going points that way,” said Schenker, though he added that the rebound for ferrous scrap and steel could go slowly.
In a separate ISRI Convention session, John Harris of Canada-based Aaristic Services said the role of the NAFTA region in overall global steel production has receded. The region’s 119 million metric tons of steel produced in 2014 was 7.4 percent of the 1.6 billion metric tons produced globally. “That’s it—a tiny percentage,” said Harris.
That circumstance means steelmaking conditions in other parts of the world can greatly affect steel and ferrous scrap pricing in North America, with conditions in Turkey and China being the most prominent. Turkey’s electric arc furnace steelmakers have for a long time driven the ferrous scrap export market in North America, but Harris said the country’s scrap deficit is quickly narrowing.
He also stated that of the 800 million metric tons of steel produced in China in 2014, the nation only consumed 700 million tons of it domestically. “And they have an economy that is struggling,” Harris said. He said he expects to see China continuing to export long products and rebar throughout 2015.
Among the nations importing Chinese steel is likely to be the United States. At the Ferrous Spotlight session, Coslov said he does not foresee a repeat of the 2002 tariffs put in place to slow down the tide of imported steel. The 2002 tariffs, said Coslov, “helped pull us out of that recession. Now, I don’t see anyone who is going to help the steel industry at all—not in Congress or the White House.”
Coslov said imported steel affects the scrap market by lowering operating capacities at domestic mills and by creating additional ferrous scrap supplies at a time when domestic demand is low. “For every 1 million tons of imported steel that comes in, that also creates 250,000 tons of scrap,” he stated.
The 2015 ISRI Convention & Exposition was at the Vancouver Convention Centre April 21-25.
Brian Taylor
