Tight Ferrous Scrap Supply Markets, Diminished Flows and Strong Exports – Part One

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I’ve already fallen a bit behind on my reporting from the ISRI conference held here in Chicago this week (I had to finalize a metal market overview I am giving to a group of manufacturers in Western Michigan on tomorrow if truth be told). When I came back from the conference, my husband asked, “what did you learn and what did you find interesting? First, I’m happy he was willing to sit through and listen to my synopsis (we’re going to start video blogging some of this in the next week to ten days because it’s almost easier to explain it than to write it). Anyhow, let’s start with what I learned.  The first speaker, James Moss of First River Consulting gave an excellent industry overview.

Like us here at MetalMiner, Moss feels one must look at many more macroeconomic features to “get a grip as to what is going on. He cited two statistics of interest. The first, that the developing world will consume 75% of global steel production and the second that the US will consume only 6% of global steel production helps set the stage for what Moss calls “the story of the next generation. He went on to say that the US saw a 45% demand decline in this latest recession, ranking it among the top four declines of the 20th (and now 21st) centuries. Perhaps the most interesting “lesson learned that Moss shared involved this one statement, “Scrap behaves just like any other mineral. I’m assuming he means the market dynamics for scrap behave like any other commodity. He went on to point out that there is a greater than .90 correlation between scrap generation and steel consumption. 50% of scrap generation came from the “obsolete stream and now 75% of scrap supply comes from that stream, placing a lot of pressure on scrap yards. In addition, the US is now the world’s largest ferrous scrap exporter. Moss also said  that our vast obsolete scrap supply, if converted to steel on US soil, will allow our own domestic steel industry to become stronger via the export of finished products as opposed to raw materials.

John Harris, Director of NAFTA Metallics for ArcelorMittal, definitely wins the “most colorful speaker award. With 25+ years of industry experience, he had lots of insights to share.  He defined the NAFTA scrap markets (from an export perspective) as being driven by three features: the Euro/Dollar exchange rate, freight costs and the Middle East oil price. In addition, Harris painted a clearer picture of the scrap market players within North America and explained the spread between prime and obsolete scrap prices by stating that, “Consumers of scrap in NAFTA control over 77% of the market and exports in NAFTA are controlled by two players with about 80% of the market. He went on to say, “According to the IIS, the NAFTA region is at a 110 m metric ton production rate. Of that production, EAF represents 56%. Of the 56%, 60% is black carbon on the electric side, which doesn’t exist in other global markets. If we look at the published operating rates of AMM, January was 61%. The spread between prime and obsolete was $80. The highest operating rates reached 74.9%. The spread was $145 between prime and obsolete. Today we are operating at a 70.6% capacity rate (Ed. Note: last week’s numbers according to the American Iron and Steel Institute) with a $100/spread.”

In a follow-up post we’ll share a few more additional insights from the ferrous round table discussions from the ISRI conference.

–Lisa Reisman

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