Scrap Iron Prices Spike in December

Ferrous scrap prices took a sharp upward turn in December as spot market buyers paid from $47 to $70 per ton more for their scrap, according to transaction pricing compiled by Management Science Associates Inc. (MSA) for its Raw Material Data Aggregation Service (RMDAS).

Prompt grades of scrap zoomed well past the $300 per ton barrier, with spot market buyers paying from $332 to $341 per ton for prompt grades in December.

The December rebound was anticipated by scrap recyclers as early as mid-November, when they began to notice domestic steel mill buyers beginning to reemerge to compete for material with overseas bulk cargo and containerized scrap buyers.

Recyclers contacted in mid-December anticipate that pricing will stay strong into January, as demand for scrap at the December prices has remained healthy late into the month.

Many processors have indicated that domestic mills may have allowed their inventories to sink too low early in the fourth quarter of 2009, forcing them to pick up the pace of their buying in late November and December.

“You had this herd mentality with mills not wanting to get caught short of scrap after being afraid to buy at all,” says one East Coast recycler. “It happened in both late November and early December, which is why we saw the crazy price increases we did.”

One nagging question for processors, says the recycler, is “How much of what was bought in December is really for January melt schedules?”

On the supply side, Adam Weitsman of Upstate Shredding, Owego, N.Y., says scrap flows have been healthy in December, characterizing them as “close to a record for this time of year.” He adds though, that his company has been very active in seeking that scrap, not relying on increased scale prices alone to draw out scrap.

The mid-December snow storm that blanketed parts of the Northeast and Mid-Atlantic states also missed most of Weitsman’s market region. “The big snow storm did not hit us, so the flow has been really strong.”

Weitsman says he has seen business at the new steel service center company within his family of companies begin to pick up in late 2009 by some 15 to 20 percent. Demand for pipe and tube product has been strong in his market region, where natural gas drilling is undergoing a bit of a boom. “I don’t think the economy is great, but I think there is some growth going forward from here,” he comments. “The sentiment of people is getting a little more positive heading into the New Year.”

Ideally, the demand for new steel will be reflected in demand for scrap from domestic mills, which recyclers report also has been increasing.

“The domestic mills have stepped up and overtaken the export buyers for now,” says Weitsman. “It’s been an export party for awhile.”

The other recycler, on the East Coast, foresees January demand as “not as great as December, but still decent.” Pricing may remain under pressure, he says because “supply is still hard to come by. There is not much coming in, and very little busheling out there to be purchased.”

The domestic steel industry’s long climb back to better health continued into December. Steel producers in the United States, according to the American Iron and Steel Institute (AISI), were producing at 64.9 percent of capacity in the second week of December 2009, compared to a 40.9 percent capability utilization rate in the second week of December 2008.

Globally, statistics for November of 2009 compiled by the World Steel Association (Worldsteel), showed a dip in global production in November compared to October.

The 107.5 million metric tons produced in November by the 66 nations tracked by Worldsteel amounts to 24 percent more steel than was made in November 2008, when the industry was in a market trough.

However, the figure is lower by nearly 6 million metric tons compared to the month before. Production declines in China accounted for nearly 4.5 million of that 6 million ton drop off, as that nation’s mills experienced one of their few backward months for production.

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 Ralph Pinkert at 773-588-1199 or via e-mail at RPinkert@MSA.com.