Volatility Returns in Force to Ferrous Market

Volatility Returns in Force to Ferrous Market

RMDAS pricing for the domestic spot market plunges $50 to $65 per ton.

June 21, 2012
Recycling Today Staff

After more than half a year of relatively smooth waters, rough waters returned to the ferrous scrap market in late May and early June in the form of price drops in the $50-to-$65-per-ton range.

U.S.-based steel mills buying on the spot market in late May and early June paid up to $65 less per ton for ferrous scrap compared to the month before, according to the monthly averages issued by the Raw Material Data Aggregation Service (RMDAS) of Pittsburgh-based Management Science Associates (MSA). (To view RMDAS figures, click here.)

Average per-ton prices in the buying period fell below $400 per ton for all major ferrous grades in all three RMDAS regions.

The South region experienced some of biggest price swings with the RMDAS prompt industrial composite grade (consisting of No. 1 busheling, No. 1 bundles and No. 1 factory bundles) dropping $65 per ton in value.

Pricing in all three regions fell considerably, however, with No. 1 heavy melting steel falling to $340 per ton in the North Midwest region (the lowest per ton regional price for a grade). Prompt grades in the North Central/East region stayed closest to the $400 level, finishing with a $395 average per-ton sale price.

As the Bureau of International Recycling (BIR) Ferrous Division met in Rome in late May, the declining ferrous scrap markets were just beginning to become evident to scrap traders who offered market reports.

“Many producers in the steel and metals sector are considering [having] prolonged summer breaks,” warned Anton van Genuchten of Netherlands-based Reukeuma Recycling Alliance BV regarding conditions in Europe. “Consumers, except in Germany, are scared and not spending,” he added. “French and Italian car producers are hit hard; their [sales] have decreased by up to 30 percent.”

Tom Bird, who works for Van Dalen Recycling in the U.K., said purchases from Turkish mills in the first half of 2012 have at times occurred “at levels that disappointed.” Bird added, “The first five months of 2012 have been challenging.”

Blake Kelley, based in Sims Metal Management’s (SMM) New York office, spelled out tight scrap supply conditions in North America, but noted that there were demand concerns on the horizon, including “the situation in Greece, a Chinese economic ‘slowdown,’ sputtering growth in India [and] excess steelmaking capacity.”

Hisatoshi Kojo of Japan’s Metz Corp. painted recent market conditions in a positive light, but warned of problems looming that could affect ferrous scrap pricing. “Due to the downturn of new export business, a sluggish steel product market and European economic malaise, higher prices seem unlikely and most scrap dealers are running their yards with minimum stock levels,” he stated.

With prices dropping in an already tight supply environment, flows into scrap yards will remain a source of concern for processors and traders. In the U.S. in late May, SMM’s Kelley described conditions consisting of “severe competition for unprepared scrap, as dealers are forced to reach out further to find supply volumes.”

Steel mill output, a natural place to look when determining why prices are falling, has not occurred on any significant level in the United States. According to the American Iron and Steel Institute (AISI), Washington, weekly domestic raw steel production in mid-June was 1.9 million net tons at a capability utilization rate of 76.2 percent. That’s 1 percent higher than the output level during the comparable mid-June week of 2011 and down just 0.2 percent (4,000 tons) from the previous week in June.

And looking at falling worldwide demand as a potential reason for falling prices, the Brussels-based World Steel Association (WorldSteel) has reported that global steel output increased by more than 2 million metric tons in May compared to the prior month.

Even in beleaguered Europe, steel production in May increased by about 400,000 metric tons compared to April, with steelmakers in Germany accounting for one-fourth of that increase.

Although Van Dalen’s Bird described ferrous scrap purchases in Turkey as at times “disappointing,” that nation’s steel output rose by a few thousand metric tons in May, reaching the 3 million metric ton mark for the month.

China also kept churning out steel in May, with its monthly production of 61.2 million metric tons surpassing April’s total of 60.6 million metric tons.

A region that moved backward in its steel output in May was South America, with Brazil’s output declining from more than 3 million metric tons in April to 2.9 million in May. Argentina and Venezuela also produced less steel in May compared to April.

The Raw Material Data Aggregation Service (RMDAS) Ferrous Scrap Price Index is based on data gathered from a statistically significant compilation of verified ferrous scrap purchase transactions.

RMDAS is a service of Management Science Associates Inc. (MSA), Pittsburgh. Those seeking more information about RMDAS can contact MSA’s Jeralyn Brown at 724-265-6574 or via e-mail at JBrown@MSA.com.