ISRI Roundtables: Steel Off Its Peak

There may be signs of economic trouble in developed nations but there are few signs that global steelmaking is ready to head dramatically in reverse.

Four panelists at the Ferrous Roundtable at the Institute of Scrap Recycling Industries Inc. (ISRI) Commodities Roundtable Forum have watched pricing retreat from earlier peaks, but they continue to see stable demand for both steel and scrap.

Steel industry analyst Michelle Applebaum of Chicago-based Michelle Applebaum Research said that recent bearishness on Wall Street toward steel industry stock prices may have been unwarranted. “I think the market has horribly over-reacted,” she said.

Unlike with stocks in other sectors, steel company stocks never benefitted from any of this decade’s “irrational exuberance,” according to Applebaum.

Beyond Wall Street, the wider concern is to what extent the global economy will continue to crave finished steel at a time when demand in the United States is lean.

“An awful lot of our customers have gotten very, very slow,” remarked David Bernstein of steel service center State Steel, Sioux City, Iowa. In addition to a slower domestic demand for finished steel, Bernstein noted that many of his company’s customers have been paying at a slower rate, pushing receivables out for State Steel.

Bernstein remarked that in Iowa the agricultural sector is “on fire” and has provided a source of encouragement while other sectors have trended downward.

Applebaum referred to the United States as having a “bi-modal” economy, with some pieces (housing and automotive) being in recession and other pieces “keeping the [overall] economy from being in recession.”

For ferrous scrap shippers a larger question rests with the global economy and the ability of steel mills in other parts of the world to keep churning out product.

Tying into this is the value of the dollar, which if it remains low will allow North America to be a market of choice for overseas buyers of ferrous scrap. Analyst John Coheeney of energy broker ICAP Energy LLC, Jersey City, N.J., remarked that the dollar may have been strengthening in mid-September against the euro largely because of gloom in Europe about its own economy.

“From the European side of things, three times a week I hear from European analysts that is the weakness there causing the dollar to strengthen against the euro,” he commented.

Analyst Monica Bonar of Fitch Ratings, New York, also singled out “structural stresses in those economies” as a source of concern in Europe.

In the question-and-answer part of the session, several views were offered as to where the global ferrous scrap market was headed. John Harris of ArcelorMittal suggested that China is on its way to becoming self-sufficient in ferrous scrap, possibly being 5-to-10 years away from that status.

Harris offered that China’s self-sufficiency means that scrap that has been heading there can help feed Turkish mills, keeping that market in balance. Russia’s new EAF capacity, said Harris, will be fed by its own scrap sources, which he views as being abundant.

Equipment supplier Scott Newell of The Shredder Co., Canutillo, Texas, confirmed that China is generating and processing more scrap (based on shredding plants his company is installing there). But he is not as convinced that China will be exporting scrap.

His prediction is that as that nation’s citizens build and purchase more autos and appliances, the demand for flat-rolled steel will provide abundant internal demand for scrap. “So scrap will stay [in China] for domestic use,” said Newell.

The 2008 ISRI Commodities Roundtable Forum was held in Chicago Sept. 15-17.