Keeping the carousel moving

Statistical indicators point to a stagnant steelmaking sector and lower prices being paid for ferrous scrap, but that hasn’t necessarily caused ferrous scrap recyclers to rest up as they head into 2015.

Scrap processors and traders in Europe report that while supply is tight, flows have not dried up and renewed interest from overseas and regional buyers may soon help bid up the prices of ferrous scrap after a period of declines in the fourth quarter of 2014.

One northern Europe-based scrap trader says weather and falling prices have indeed crimped supply. “There is little availability now as we head into winter and the holiday season,” he said in mid-December.

Winter weather is partly to blame, he says “The winter is not assisting such a situation in some places. The scrap supply is tight; European availability is extremely poor as most yards are empty and/or people have sold short.”
 

The trader says overseas buyers with a renewed interest in buying ferrous scrap are going to run into problems not only in Europe but also in North America and Australia. “Given the strength of the U.S. domestic steel market, we hear there is no availability from the U.S. East Coast until January and that the U.S. West Coast and Australia are sold out until February.”

The end result in Europe, he says, will be orders going unfulfilled. “We are hearing about initial postponements of shipments because of a lack of material.”

A trader based in the United Kingdom acknowledges that supplies are tight, but says scrap is continuing to flow in his operating region. The U.K. trader says smaller dealers do not want to be left holding inventory in a volatile market.

“We continue to see availability of material even though prices are only going down,” he comments. “So as such there is not a tight holding back from smaller yards to move material up the supply chain, and I believe that is because no one wants a speculative position of any kind, and they would rather live in the world of today.”

As of mid-December, the U.K. trader was not yet convinced the market had reached a point where renewed demand would help boost prices back up. “As far as demand is concerned, there are no robust, hungry, keenly enthusiastic buyers because there is always someone who is able to sell them material at a price that is workable for them,” he comments. The trader adds, “And this price currently is invariably lower than yesterday’s price.”

Steel prices dropped through much of the fourth quarter of 2014, and steelmaking statistics gathered by the World Steel Association (Worldsteel), Brussels, are pointing to a global market where output could move in reverse if China’s need for steel has indeed peaked.

The world’s steel production figures for October 2014, April 2014 and October 2013 are each in the 136.7 million tonne range, indicating a plateau in steelmaking that is largely tied to the sputtering of China’s steel output.

China, which produces half of the world’s steel annually and is by far the world’s leading steel producing nation, has rarely seen flat steel output numbers in the past two decades. But its monthly steel output figure for October 2014 (67.51 million tonnes) is actually below the year-ago figure from October 2013 (67.73 million tonnes).

China’s housing market (housing largely comprised of steel-framed apartment towers) has cooled considerably, and economists around the world are calling into question the ongoing ability of China’s central government, its local governments and its five large state-owned banks to continue to pour money into steel-intensive infrastructure projects.

Steel producers and ministries of trade and commerce in other parts of the world are already gearing up to combat what they see as current and anticipated finished steel dumping practices as Chinese steelmakers try to draw down inventories of billets, slabs and coils of steel.

According to a Bloomberg report in November 2014, the China Iron & Steel Association says the nation’s steel producers will likely export 80 million tons of finished steel in 2014—greater than annual output in the United States. A Japanese trade association asserts the real export figure from China will exceed 100 million tons, which would be on par with Japan’s annual production.

Ferrous scrap recyclers in many parts of the world have a vested interest in such trade battles, as they would likely prefer that scrap-fed electric arc furnaces closer to home produce more steel while the basic oxygen furnaces of China scale back their output and limit their exports.