Atmospheric Conditions

Scrap recyclers, like everyone else in the world, can only do so much about the weather. Thus far in 2012, however, the weather has played a role in ferrous scrap flows in both the European Union and in North America.

Europe’s financial atmosphere may be receiving the most attention, but literal atmospheric conditions also have been part of the story, as several regions have experienced a series of disruptive winter storms in the first two months of the year.

Ruggero Alocci of Alocci Rappresentanze in Italy (www.alocci.com) has reported that “heavy winter storms covered several countries” in Europe, including Italy. “A couple of weeks of very strong winter [in Italy led to] transport limitations and steel production cuts due to the lack of electric power and gas supplies.”

In its February 2012 market report, the BVSE (German Federal Association for Secondary Raw Materials and Waste Management, www.bvse.de) cited the inclement winter weather as reasons for less ferrous scrap purchasing by German mills as well as reduced supplies of scrap. “Scrap supply and demand were well balanced, as low supply was met by a similarly low level of demand,” reports the BVSE. “Planned demolition work fell victim to the [weather].”

Lower February mill prices also prompted many scrap collectors and small dealers to hold material. “The short supply of obsolete scrap was noticeably felt as an input material for shears and shredders; in a few regions the input was reduced by as much as 90%,” reports the BVSE of February flows.

On the demand side, some 1.8 million tonnes headed to Turkey, reports BVSE, although much of this came from North America, where supply has been steadier.

The financial storms in Europe have not completely subsided either, with investors and monetary policy makers in the European Union continuing to monitor Greece, Spain and Italy for any signs of inability to meet their debt obligations.

After declining in the fourth quarter of 2011, Germany’s economy (Europe’s largest) is expected to grow by only 0.7% to 1.0%, according to a Reuters report. Economists and investment analysts quoted in the report pointed to the debt crises of other European Union nations as the reason for the tepid forecasts.

German steelmakers produced less steel in January 2012 compared to January 2011, a pattern that was repeated in many European nations. According to the World Steel Association, Brussels, the EU 27 nations produced 5.6% less steel in January 2012 compared to January 2011.

While German production was down by 8.5%, Spanish mills produced 13% less and output at British mills was off by 24.4%. Steelmakers in Eastern Europe demonstrated fewer difficulties, with output up by 20% in Poland and 17.8% in Romania.

In North America, it is unusually mild winter weather that has been part of the story. Most of the heavily populated regions of the United States and Canada have experienced few if any snowstorms or long stretches of freezing temperatures.

Although the construction sector is far from booming in the United States, there have been fewer seasonal interruptions for demolition work, construction projects and highway projects.

At the National Demolition Association Convention in March in San Antonio, Texas, economist Dr. Anirban Basu of Sage Policy Group (www.sagepolicy.com) noted that the construction sector continues to lag other parts of the U.S. economy, most of which have been performing well for up to 10 consecutive financial quarters.

The Federal Reserve Industrial Production index number has been on an upward march since the third quarter of 2009. “The recession is now over, and has been for some time,” said Basu. “The recovery has been more profound than people realize; this is America at her best.”

Basu told the convention attendees that he recalled speaking to and reading analyses from several Europeans in 2007 and 2008 who forecast that the U.S. economy was likely to be the one holding back global economic conditions for the next several years.

Starting in 2010, however, Basu tracked the flow of global capital back into the U.S., as securities in China took a drubbing and investors soured on Europe during its debt negotiations.

Renewed global confidence in the United States has resulted in some re-hiring and the re-ignition of consumer spending on automobiles and other goods (though not necessarily single-family housing, which remains mired in problems, according to Basu).

Over the past 10 quarters, GDP growth in the U.S. has averaged 3%, even with an under-performing construction sector. Global GDP, meanwhile, has fallen from 5.2% in 2010 to 3.8% in 2011 and a projected 3.3% in 2012, said Basu. “The weakness is in Europe,” he stated.

Steelmakers in the U.S. remain in stable condition, with mills running at 79% of capacity in the first full week of March 2012. That is up from a 75% operating rate during the comparable week in 2011.

America’s neighbor Canada continues to enjoy good economic circumstances, including three consecutive months of trade surpluses, as reported by news agency AFP. Canada’s crude petroleum exports have reached a record high and trade in assembled vehicles and auto components has accelerated, according to the report.

Canada’s export of automotive products has increased throughout late 2011 and early 2012, reaching levels last seen in early 2006.

China’s estimated growth may slow somewhat in 2012, but analysts and forecasters seem to be agreeing on a figure in the 7.5% to 8.0% range for annual GPD growth.

Regarding scrap export destination China, at the National People’s Congress in Beijing in March, Chinese Premier Wen Jiaboa announced a GPD target reduction from 8% to 7.5%. According to a Reuters report, Wen said the reduction was appropriate “so that China’s economy can overcome its unbalanced, unsustainable and uncoordinated problems to step on a road focused on quality, which is also fundamentally positive for the world economy.”

Chinese metals production figures released in March indicate that slower conditions have seemingly not affected the nation’s steel industry. In February, Chinese steel mills churned out 1.93 million tonnes on a daily basis, up from 1.83 million tonnes in January. A Reuters report indicated mills were ramping up operations in anticipation of greater demand for steel in March and April.