Processors and shippers of ferrous scrap who watched their market size seemingly get cut in half in a matter of weeks in the fall of 2008 continue to work in that smaller market.
Panelists at the Ferrous Spotlight session at the 2009 ISRI (Institute of Scrap Recycling Industries Inc.) Annual Convention did not predict a quick return to early 2008 boom market conditions, but predictions about the market’s future were mixed.
Steel industry analyst Charles Bradford of Bradford Research, New York, said he sees signs that a multi-level inventory overhang is beginning to draw down, which should be good news for steelmakers and scrap dealers.
Bradford says that global steel consumption has declined 20 to 25 percent, but steel output in the United States is down 50 percent. “Something doesn’t equate; there has to be more to it and I think it’s inventory,” he remarked. “There has been excess inventory not just of steel, but of things made of steel, like cars.”
Bradford said he is encouraged that Ford Motor Co. has announced that it will produce 25 percent more cars in the second quarter of 2009 than it did in the first quarter. He noted that while automakers have cut production to an annual rate of 8 million to 9 million vehicles, if some 13 million vehicles are scrapped this year, that is another case of numbers that don’t equate.
Auto production may not return to 2007 rates, but Bradford says a return to an annual production of 13 million vehicles strikes him as feasible.
Although auto sales and construction activity may not return to 2007 rates, Bradford believes the financial crisis and economic downturn produced a glut of both vehicles and steel at service centers that has caused steel output to temporarily plunge because of this oversupply.
Bradford said that service centers have been buying steel from each other rather than from mills as part of their strategy to work through inventory.
The news has not been all bad for scrap dealers. Session moderator John Harris noted that the lower scrap prices had caused many integrated steelmakers in China to begin using more scrap in their furnaces.
Demand from China, India and Turkey has caused a thriving market for containerized ferrous scrap moving from the United States to those nations. “Who would have thought a few years ago that scrap recyclers would be shipping ferrous containers from scrap yards in Pennsylvania?” remarked panelist Joseph Curtin of Tube City IMS, Glassport, Pa.
Panelist Randy Ehret of Timken, Canton, Ohio, noted that his company’s electric arc furnace (EAF) mills are fed largely with scrap, with 45 percent of the feedstock being shredded grades. He recalled the 2008 price spikes from the point of view of a mill buyer, saying, “We run with a fairly large inventory to prevent getting into a panic buying situation. But if you’re a buyer, there are times when you’re worried whether you can get enough iron units. And when that happens, I’ll pay whatever I need to to get those units.”
Ehret, Curtin and Harris—each of whom are responsible for keeping mills supplied—remarked that when melting schedules improve, there are likely to be similar scrambles for scrap metal. Curtin noted that lost manufacturing capacity in the United States in particular will make prompt grades hard to come by.
Steel industry analyst Gavin Montgomery of CRU, London, may have been the most bearish. He said the steel industry’s capacity downturn is likely to continue, and that the drop is so severe that a return to 2007 global steel production volumes may not occur until 2012.
But Bradford saw signs of encouragement because of the working through of inventories. “We’ll work through it; we always do,” he remarked. “We did in 1982, and this [situation] is more like 1982, not 1929. I’m optimistic.”
Bradford also remarked that scrap processors and EAF steelmakers may benefit from continued legislative attention to carbon emissions. “Integrated mills emit three times as much carbon as the average EAF,” said Bradford.
The 2009 ISRI Annual Convention took place April 26-30 at the Mandalay Bay Resort in Las Vegas.