BIR CONVENTION: Steel’s Sustained Strength

The urbanization of China and India brings with it a need for steel that should sustain a bull market for steel for several more years, according to securities analyst Peter Hickson of UBS Investment Bank, London.

Speaking at the Ferrous Division meeting at the Spring 2006 Bureau of International Recycling (BIR) Convention, Hickson compared the current steel situation to the one that accompanied the urbanization and re-building of Japan in the 1960s.

“We may see a set of steel prices that are sustained at $400 or $450 per ton [and higher] for an elevated period,” said Hickson.

Even though China is now producing 300 million tons of steel each year, the nation’s ability to consume its own steel “has surprised us,” said Hickson. China’s appetite for steel has put a strain on the global supply for steelmaking materials, resulting in continued high prices for ferrous scrap, iron ore and pig iron.

Hickson characterized the prices Chinese steelmakers are paying for imported scrap as “showing a pretty relentless rise,” and added that the United States is “clearly the biggest player” as a supplier of ferrous scrap to China.

BIR Ferrous Division President Colin Iles, of U.K.-based European Metal Recycling Ltd., characterized the steel industry as experiencing strong “underlying demand coupled with consolidated supply.” The result is that “prices for all ferrous [scrap] grades have increased due to strong fundamentals,” said Iles.

Iles said he expects conditions to remain favorable. “Increased scrap consumption is evident and appears sustainable for the future,” he remarked. “The tight supply conditions are expected to continue until mills are satisfied with their inventory.”

Ikbal Nathani of India’s Nathani Group informed attendees that ordnance mixed into scrap loads has resulted in seven deaths at Indian mills and foundries, causing the Indian government to at one point consider allowing only shredded scrap into the country.

Denis Ilatovskiy of Russia’s MAIR Joint Stock Co. wondered aloud why scrap prices are rising since China’s new steelmaking capacity is not using electric arc furnaces (EAFs). He also expressed concerns that steel industry consolidation in Europe is putting the widely fragmented scrap sellers in Russia and Ukraine at a disadvantage.

In a panel discussion toward the end of the Division meeting, Jeremy Sutcliffe of Australia’s Sims Group Ltd. noted that even though China’s new steel mills are not using EAFs, the enormous new capacity of China still represents “big figures” even if they are only using scrap as 15 percent of their charge.

Peter Hickson noted that earlier concerns about China’s steelmakers running into energy shortages have not proven to be accurate, and that in fact China “could be swinging into a power surplus by 2007 or 2008.”

The BIR Spring 2006 Convention was held at the China World Hotel in Beijing May 29-31.