Cold comfort in a hot summer

Features - Ferrous Metals

A ferrous scrap market that started the year red hot cooled considerably in the summer heat.

August 30, 2022

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Demolition work in much of the United States proved to be a hot, sweaty undertaking during the summer of 2022, as intermittent heat waves caused the summer to be one of the hottest on record.

Contrary to the meteorological climate, however, the market for the scrap iron generated at demolition jobs cooled considerably after hot winter and spring conditions.

By mid-August, prices for plate and structural (P&S) and heavy melting steel (HMS) scrap were down some $190 per ton compared with highs reached in March. Remarkably enough, however, hot and dry weather conditions halfway around the world seemed to be providing a reason for price increases as the hot summer dragged on.

Peaking in the spring

The price of No. 1 HMS, as tracked via steel mill purchases by the Raw Material Data Aggregation Service (RMDAS) of Pittsburgh-based Management Science Associates Inc., started 2022 at a level likely considered encouraging enough for demo contractors to harvest steel scrap and take it promptly to a recycling facility.

RMDAS, which tracks No. 1 HMS among benchmark grades nationally and in three geographic regions, had the grade starting the year with an average mill buying value of $421 per ton. The No. 1 HMS grade stayed at that value in February. The grade leapt in value in March, climbing 29 percent to $545 in the early March mill buying period.

However, March was the peak for No. 1 HMS, as it fell steadily in value in April, May and June, with the June buying period going below its January price at $395 per ton.

July brought more bad news, with U.S. mills paying an average of only $355 per ton for No. 1 HMS.

The commonly exported HMS grades fared no better in overseas markets, with metals information service Davis Index reporting steep plunges in pricing it tracks in Los Angeles, New York and other export regions.

Davis Index also tracks pricing for the P&S grade in the U.S. and globally, providing a service of particular interest to demolition contractors. A consumer (mill and foundry) buying price for P&S 5-foot and shorter scrap value calculated by Davis Index checked in at $508 per ton in March and $539 in April. Like HMS, however, the grade wilted in the heat of the summer, falling to $387 per ton as a July average.

A prolonged ferrous scrap price slump can change the estimates and calculations that lead to demolition activity in the U.S., though the impact generally has a lag time of several months. The concern among demolition contractors, however, is that low prices that carry on for more than about three months can rattle the confidence of property owners who were nearly ready to give the green light to an industrial or commercial demolition project.

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Too hot (and dry) to handle

After the June through early August price drops that led to increasingly lower scale prices for demo contractors’ harvested scrap, a signal toward a slight uptick began appearing in mid-August.

Neither demand from North American steel mills nor the global economy necessarily had improved. Rather, a combination of factors led to dwindling supplies that finally allowed scrap iron sellers to refuse the lowest bids.

Aug. 17, Davis Index reported scale traffic in the Houston region, as one example, had been flat for several weeks in late July and early August as peddlers stayed away from yards for at least two reasons.

Veteran scrap trader and consultant Nathan Fruchter of New York-based Idoru Recycling tells Recycling Today (a sister publication to Construction & Demolition Recycling) his assessment of retail scrap trading activity in Europe—which was having a similar series of heat waves—in August.

In comments that could just as well be applied to peddlers in the United States, Fruchter says that “extreme heat on the continent is offering a disincentive for some scrap collection. With high truck fuel prices, it costs the collector much more to gather in his scrap and bring it to yards. For what? Just to bring it to a yard and see a low scale price?”

A scrap processor in the Great Lakes region tells Recycling Today that as of July he was seeing a shift in the supply landscape that eventually should contribute to a price rebound. “Flows are definitely down,” he says. “I’d say there has been a 20 to 30 percent reduction.”

Scrap generators, including demolition contractors, need cash flow, so by the third week in August, Davis Index indicated slightly greater volumes of scrap were beginning to trickle into yards in the U.S.

A drought-related condition in Europe also might be creating more overseas interest in exportable U.S. scrap. Scrap pricing tracked by Davis Index showed a price rebound on the Atlantic Coast beginning to emerge in late July. Of the five Davis Index prices published by Recycling Today for its monthly ferrous market update, the only one that rose in July was for bulk export shipments from New York.

The July average for bulk mixed No. 1 and No. 2 HMS cargoes purchased in New York rose by 1.6 percent in July compared with June. This modest increase was largely spurred by Indian buyers, traders and recyclers tell Recycling Today.

After few cargoes in July were sold from the U.S. to Turkey (the largest overseas buyer of exported U.S. ferrous scrap for several years running), as August began, many Turkish buyers realized they had “stayed out of the buying arena for far too long, so they need to buy,” Fruchter says.

Turkey’s economic and geopolitical circumstances could have dictated that mill buyers look at places other than the U.S. for scrap (including Russia), but alternative markets simply might not have been suitable.

In Europe, a lengthy vacation season and rising truck fuel costs already had combined to reduce volumes across the scale in July and August.

Another potential problem in Europe has been emerging in media reports about waterborne shipping conditions on the continent.

In the second week of August, Greece-based Hellenic Shipping News, regarding conditions in Germany, reports, “Weeks of baking temperatures and scant rainfall this summer have drained the water levels of the Rhine, the country’s commercial artery, causing delays to shipping and pushing freight costs up more than five-fold.”

The shipping publication offered an example pertaining to iron ore that can be just as applicable to ferrous scrap. “Barges like the Servia, a 135-meter (148-yard) vessel carrying iron ore from the port of Rotterdam to German steelmaker Thyssenkrupp’s plant in Duisburg can only load 30 percent to 40 percent of its capacity or risk running aground,” the publication reports.

It is a circumstance that will make shipping scrap to export terminals in northern Europe increasingly cost-ineffective. With scrap supply choked off in Europe, mill buyers in Turkey and several other nations who—all things being equal—might prefer European scrap find themselves scrambling to source scrap from North America for the time being.

American demolition contractors and other generators of ferrous scrap in the U.S. who normally might not wish any harm to the European economy might have to admit they would benefit from a Rhine River water level that remains low for a while.

However, the market for steel and iron scrap is a global one, and momentum can reappear and disappear in a matter of days.

As of late summer, demolition contractors have seen the results of a down market and remain hopeful some positive price momentum is on the way.

The author is senior editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net.