Worrisome numbers

Recyclers gathered for the 2016 Bureau of International Recycling (BIR) World Recycling Convention in Berlin in late May and early June received a rundown of ferrous scrap statistics that was far from encouraging.

The Ferrous Division of the Brussels-based BIR released the seventh edition of its “World Steel Recycling in Figures” at the event. The newest version of the 42-page booklet, which offers data from the five-year period from 2011-2015, includes additional information about the scrap and steel markets in Turkey, Ukraine and Hong Kong.

Rolf Willeke, statistics advisor to the BIR Ferrous Division, says 2015 witnessed a decrease in ferrous scrap use in several major nations and regions, including the United States (-8.9%); Turkey (-7.5%); China (-4.8%); South Korea (-8.3%); and Russia (-10.4%).

The amount of steel made globally via the scrap-intensive electric arc furnace (EAF) process dropped to 403 million tonnes in 2015. EAF production has fallen from 29.2% in 2011 to 24.8% in 2015.

China, the world’s largest steel producer, remains particularly low on EAF production, with just 6.1% of its steel made that way in 2015.

The world’s largest ferrous scrap importing nation in 2015 was Turkey, with 16.25 million tonnes. That figure, however, is down by 14.8% compared with the 19 million tonnes it imported in 2014.

The leading ferrous scrap exporter was the EU at 13.7 million tonnes, followed by the United States at just under 13 million tonnes. The volume exported by the EU, however, fell by 18.9% compared to 2014, while U.S. exports dropped 15.4%.

Other speakers at the BIR Ferrous Division meeting offered insight as to the state of the current and near-term future market. Ferrous scrap processors may have appreciated increased scrap flows and pricing in April and May 2016, but the BIR Ferrous Division president wondered aloud whether the price spike was boosted by investors in Shanghai.

William Schmiedel of Sims Metal Management said contracts for 220 million tons of steel rebar were traded on the Shanghai Futures Exchange (SHFE) April 21, 2016—more than the entire annual production of rebar in China.

As has long been in the case on the nonferrous side of the scrap recycling business, Schmiedel said speculation may now be “something we will have to contend with” in the ferrous scrap sector.

Calling the spring price spike, which followed a multimonth slump, a rollercoaster is “an understatement,” Schmiedel said.

The steel and scrap price slump, largely caused by exported low-priced Chinese billet shipped to scrap importers such as Turkey, eventually drove scrap prices into a range that caused supply shortages, he added. The resulting ferrous scrap price increase in March, Schmiedel said, was an indication that when prices are below $200, “The basic [scrap] collection system of our industry breaks down.”

Ferrous Division board member Tom Bird of Mettalis Recycling Ltd. in the U.K. pointed to temporary steel output cuts in Tianjin, China, as another reason for the spring price spike. Civic officials asked steelmakers in Tianjin to idle their furnaces in the weeks leading up to a local flower festival in April and May.

The resulting “reduction in billet for a while” helped mills in places like Turkey “turn back to scrap,” Bird said.

The Tianjin mills are back online, however, and “market dynamics have changed again,” he said.

Economist Jason Schenker of USA-based Prestige Economics provided a global economic forecast that was not greatly encouraging for the scrap or steel industries.

Schenker said the economic indicators he looks at have convinced him that China and the United States are in manufacturing recessions. In China’s case, the lengthening string of weak monthly purchasing managers index figures points to “a worsening recession,” he said.

Schenker said the U.S. automotive sector is the only major manufacturing sector that currently has strong output. The construction sector, meanwhile, exhibits marginal activity, and the energy sector is in a severe situation that includes considerable numbers of loans likely to go unpaid.

While the conference delegates expressed concern that conditions could lead to a significant price drop in June, pricing tracked by American Metal Market (AMM) during the U.S. buying period in the first 10 days of June found weakness in some grades and regions but stability in others.

Prompt grades, reflected in the AMM Midwest Index No. 1 busheling figure for June, remained in the $275-per-ton range for the second straight month, though shredded scrap and No. 1 heavy melting steel (HMS) fell by $19 to $26 per ton in the same region.

As has been the case for several months, bids made for exported ferrous scrap off of the Pacific Coast remain well below all other index figures. In June, AMM reports, buyers on the East Coast paid a remarkable 31% more for blended No. 1 and No. 2 HMS compared with buyers on the West Coast ($317 per ton compared with $219).