Steel pricing has been a wonder to behold the past two years, as the booming Chinese economy has put a strain on world supplies of steel and its basic ingredients, including ferrous scrap.
But the steel industry and its suppliers may have begun adjusting to the surge of China as the world’s leading steel producer, which means demand and supply are working their way closer to a balance.
The three speakers at the Ferrous Spotlight session of the Institute of Scrap Recycling Industries Inc. (ISRI) Annual Convention certainly seemed to agree that China was now in the driver’s seat.
“China has driven the market” for the surging steel prices of the past two years, stated James May of May Commodity Associates, London. He noted that in recent year’s China’s steel production has grown by 14.4 percent, compared to a 2.8 percent growth rate for the rest of the world.
China has emerged as the world’s largest steelmaker because its economy and those of nearby nations in Asia now consume 50 percent of the world’s steel. China itself consumed 24 percent of the world’s steel last year, compared to just 10 percent for the United States.
Keith Busse, CEO of Steel Dynamics Inc., Fort Wayne, Ind., agreed that China is the driver of the steel market.
While money continues to be spent on building projects, consumer appliances and machinery in China, there are also factors that could restrain its growth. “China has an energy problem,” noted Busse.
He also predicted that the nation would begin encountering resistance from trading partners if it does not remove its currency’s peg to the U.S. dollar. “If China is going to really join the world marketplace, it’s currency is going to have to float,” Busse remarked.
Commodities analyst May believes the growth of the Chinese economy will slow this year, although its steel consumption could still increase by more than 11 percent.
Additionally, May believes there are sizable inventories of steel in both the U.S. and Europe, which should help keep steel prices from increasing this year. May sees average hot-rolled coil prices falling to as low as $500 per ton this year, down from the $700 per ton they reached at their peak in the fall of 2004.
This will cause steel companies to put pressure on scrap suppliers to lower ferrous scrap prices, but the supply situation may not dictate lower scrap prices. For steelmakers, “In 2005, margins won’t be as good,” Busse predicted, “but I think it will be a fairly good year when it ends up.”
Busse said both steelmakers and scrap recyclers would probably be happy for a replay of 2004. “Suppliers made money, we made money and our customers made money. You don’t find many years like that,” he stated.
Also at the Ferrous Spotlight, Alfred Nijkerk of Recycling International magazine, based in The Netherlands, urged American scrap recyclers to consider opportunities in Europe. “Of all the scrap [dealers] in the U.S. and Canada, less than 5 percent dare to do business in Europe. It’s not as dangerous as you think,” quipped Nijkerk.
He noted that the expanded European Union now consumes some 33 million tons per year more ferrous scrap than does the U.S., and that the vast majority of traders in Europe speak English.
The ISRI Annual Convention was held in mid-April in New Orleans.