Entering the field of play

Despite concerns about slowing economic growth, steelmakers in China continue to produce in record numbers, while steel output in most other sizable nations in Asia also increased in 2013 compared with the year before.

This global demand for iron ore and ferrous scrap has helped solidify prices for these feedstocks, but it hasn’t necessarily lifted the steel industries in the European Union or the United States, which do little exporting to Asia.

Some economic news and indicators from late 2013 may point to a healthier steelmaking climate in Europe and North America, though business owners and managers in these regions probably feel as if they have heard that before.

National steel production figures for October 2013 from the World Steel Association, based in Brussels, show output in both the EU and North America rose compared with steelmaking levels from one year earlier.

Production in the U.S. rose 8.7% (up nearly 600,000 tonnes) compared with the October 2012 figure. The October 2013 figure is also 3.3% higher than output in October 2011, giving rise to hopes that as the U.S. enters 2014 the steel industry will be called upon to support more active spending habits by households, business owners and property developers in 2014.

While business planners in the U.S. have struggled with on-again, off-again economic rebounds since 2009, in many parts of Europe the reality has been even gloomier.

Steelmaking figures for the EU in October 2013 showed production rising 4% compared with October 2012, which can be interpreted as a positive sign when compared with the -3.4% trend recorded for the first 10 months of 2013 year-to-date.

Output in one of the hardest-hit austerity-mode nations, Spain, was up 23.9% compared with one year earlier. The automotive industry in Spain also enjoyed a rebound in autumn of 2013, as passenger vehicle sales rose by more than 34% in October 2013 compared with one year earlier.

Some auto sales in Spain, however, were government-subsidised by another trade-in program, the country’s fourth such program in the past few years. According to Bloomberg News, “Spain’s government approved the renewal of state car-sales incentives on Oct. 25, offering a €1,000 ($1,350) matching subsidy for dealer discounts on trade-ins of seven- to 10-year-old vehicles. The new cars must be more fuel efficient and be priced at €25,000 or less.”

Government-subsidised or otherwise, Spain’s partner in austerity, Italy, was enjoying no such auto sales or steelmaking revival in October. On the automotive front, “In October, Italy was the only major market to face a downturn (-5.6%),” notes a news release from the European Automobile Manufacturers Association (ACEA). “All others contributed positively to the overall 4.7% expansion of the EU [passenger car] market.”

Likewise, while steelmakers throughout most of Europe boosted production in October 2013, Italian steelmakers produced 10.1% less steel that month compared with one year earlier. Year-to-date after the first 10 months of 2013, Italy’s steel production had fallen by 13.7% (nearly 3.2 million tonnes) compared with the first 10 months of 2012.

“It seems that during the new year, we will face the same concerns we suffered during 2013, maybe a little bit less if the fragile signals of recovery will be confirmed during the first quarter of 2014,” according to ferrous scrap broker Ruggero Alocci of Alocci Rappresentanze Industriali, Genoa, Italy.

In addition to an absence of local demand, recyclers in Italy continue to suffer from a paucity of supply. “Domestic scrap recyclers are suffering a reduction of scrap generation, estimated around 25% less than one year ago,” says Alocci.

Pricing globally, including in Italy, was stronger in November 2013 for those recyclers who did have access to ferrous scrap. Alocci says prices rose €15 to €20 per tonne on the Italian market in November, while U.S. pricing services and indexes recorded $30 per gross ton price rises for major grades in that market.
 

Through the first eight months of 2013, China has been the third-largest buyer of ferrous scrap exported from the United States (behind Turkey and Taiwan and tied with South Korea for fourth). By far the world’s largest steelmaker, China relies much more heavily on iron ore—a factor in that commodity’s recent pricing change.

An early December news item on www.mining.com, based in Vancouver, Canada, reported that China’s purchasing price of iron ore had “jumped to a three-month high Dec. 3, 2013, on robust Chinese economic activity data showing continued strong growth particularly in construction and a rebound for its steel industry.”

What mining.com calls a “benchmark CFR (cost and freight) import price” for 62%-pure iron ore fines shipped to Tianjin, China, rose to $138.20 per tonne, returning to price levels that had been reported in early September 2013.

Analysts cited a stronger real estate development market, a higher purchasing managers’ index in China and overseas orders placed for Chinese steel as reasons for steel production levels in China that continue to grow.

With Chinese steel producers buying as much as 70% of the iron ore that is shipped across national borders, the iron ore market is likely to stay buoyant as long as steel producers continue to set a new world records for output each succeeding year.

As ferrous scrap exporters learned in 2009, Chinese mill buyers who pay hefty iron ore prices also act as a helpful floor to the ferrous scrap market should mill buyers in Western Europe, North America or Turkey scale back their orders enough to drive down the price of scrap.

Again in 2014 as in 2013, the supply side of the ferrous scrap buying, processing and selling equation likely will remain the greatest challenge for processors and exporters based in Europe and North America.