Russian Scrap Flow Slowing

North American and Western European scrap processors who have seen their markets flooded with Russian scrap over the past five years may see those flood waters recede.

Igor Kuzmin, vice president of Russia’s MAIR Industrial Group, told attendees of the Bureau of International Recycling (BIR) Spring Convention that new export duties in the near term and growing EAF melting capacity in the longer term will help reduce the flow of scrap heading from Russia to other parts of the world.

Kuzmin noted, “Before 1995, the total export of ferrous scrap from Russia did not exceed 1.2 million to 1.5 million tons annually. At the present time, Russian export volume outside the CIS (Commonwealth ofIndependent States) is six times more.”

There is still plenty of obsolete ferrous scrap in Russia,said Kuzmin, but a larger percentage of it is now located in remote areas, making it too costly to prepare and ship unless prices are more attractive.

The bad news for North American scrap dealers and steelmakers is that the abundance of ferrous scrap available to Russian steelmakers will help that industry pump out low-priced finished and semi-finished steel.

The ferrous scrap export duty in Russia “was introduced asa result of lobbying activity by a number of steel enterprises, who justified the necessity of the duty for domestic market protection—to ensure the supply of scrap for steel mills,” said Kuzmin.

“The [steel mills] simply want to keep the scrap price at the minimum level,” he continued. “Cheap raw materials allow them to compensate for a fall in steel prices and also the inefficiency of their own business activity.”

A forecast for continued low steel prices is not what U.S.-based scrap dealers and steelmakers wish to contemplate. Robert Philip, president of Schnitzer Steel Products Co., Portland, Ore., provided a glimpse of the gloomy market conditions in North America, and noted that the current drama might best be titled “Death of a Scrap Man.”

In a presentation at a joint BIR-ISRI symposium, Allan A.Goldstein, CEO of AMG Resources Corp., Pittsburgh, said a turnaround is not likely “in the foreseeable future. Don’t look for relief for the balance of 2001.”

Goldstein noted that the industry has always been cyclical, but that the extended good times of the 1990s caused business decision makers from auto producers through steelmakers to scrap dealers to make plans as though the economy would continually grow. Wall Street poured money into the scrap business, but retreated from the market as prices declined, he remarked.

“The shakeout and restructuring in the U.S. scrap industry will continue as the banks—which as a result of bankruptcies now own and/orcontrol all the consolidated scrap companies—exit their investments,” Goldstein stated. “The banks will not be long-term owners. This may cause a deconsolidation, or more likely will allow a further consolidation by the few strong scrap companies in the U.S.”

Reports from European presenters were not as gloomy.“ Demand for scrap remained quite high as the electric arc sector, producing over 60 million metric tons of finished product, was supported by increased export demand, assisted by the favorable low currency rate within the European Community,” reported Anthony Bird of Simsmetal regarding the situation inWestern Europe.

The BIR Spring Convention took place May 20-23 in Madrid.