ISRI Convention: Steel is Hot, Molten or Not

A slowdown in the United States economy used to mean a likely drop in demand and pricing for both steel and ferrous scrap. With the economies of East and South Asia becoming the predominant producers and consumers of these commodities, however, scrap recyclers in North America are taking part in a new market.

In a session at the ISRI (Institute of Scrap Recycling Industries Inc.) 2008 Annual Convention, attendees heard from speakers across the steel and ferrous scrap spectrum who offered reasons why there is no longer a link between a slower U.S. economy and a dropping scrap price.

Steel industry analyst Aldo Mazzaferro of Goldman, Sachs & Co., New York, remarked that even with the economic slowdown, “U.S. steelmaking is short of capacity” to serve the domestic market, which is why steelmakers are charging $1,000 per ton for hot-band and $850 per ton for rebar.

American steelmakers are producing at about 90 to 92 percent of capacity, so “there’s really not much else to squeeze out of U.S. mills,” according to Mazzaferro. Additionally, the weak dollar is not making the U.S. a preferred market for imported steel, meaning “essentially there is a bidding war for imported steel.”

John Harris, a metallics buyer for ArcelorMittal based at one of its Canadian locations, remarked that scrap dealers in the United States are benefiting from the weak dollar. “No steel is coming in here [and] scrap is leaving at a faster rate because it’s a good buy anywhere in the world.”

And while the booming economies of China and India are well known for their steel and scrap consumption, Harris also noted that the Middle East is playing a role. Oil-based economies there have “$1 trillion of infrastructure projects on the books for the next 10 years, and it’s all paid for. Guess what that does for [steel and scrap] demand?” Harris asked attendees.

Harris predicted that the global steel industry will continue to enjoy strong pricing for at least the next two quarters.

He was not as certain that ferrous scrap is in an overall shortage situation, remarking that a “Russian reservoir” built up during 50 years of large-scale Soviet steelmaking and virtually no exporting means there is still scrap to be obtained. Recyclers there are just now starting to tap into this reservoir, according to Harris. “The system there is finally getting ‘greased’ to do [scrap] collection. They’re blowing and going over there.”

Long-time shredding equipment supplier Alton Scott Newell Jr. of The Shredder Co. LLC, Canutillo, Texas, offered a prediction that the world will remain “materials short” for some time, meaning recyclers will continue to experience healthy demand for their products.

While steel industry consolidation is taking hold, Newell is less certain that the scrap industry can consolidate in the same way. If steelmakers are buying scrap assets with the premise that they will be able to obtain scrap at a lower cost, he warned them that this “doesn’t work.” He remarked that new competitors come into the recycling and shredding industry much more readily, as there is a lower barrier to entry compared to steelmaking.

In a question and answer period, analyst Mazzaferro remarked on that topic, “When steel mills buy a scrap company, they aren’t buying a scrap mine. They still have to buy the scrap [continually].”

And Jeremy Sutcliffe, managing director with Sims Metal Management, also questioned to what extent the mill companies could affect pricing. “Water finds its own level and scrap prices find their own level—it will be whatever it will be,” he remarked.

Newell noted that his company and others have been selling a number of smaller shredders to small- and medium-sized scrap companies who only need to shred 2,000 to 5,000 tons per month to make their purchase viable.

When asked if there is too much processing capacity in place in North America, Newell replied, “We’ve had enough capacity for some time,” but that competitive companies seeking efficiency will continue to make investments in new machinery.

The ISRI 2008 Annual Convention took place April 7-10 at the Mandalay Bay Resort & Casino in Las Vegas.