Steel Scrap Prices Surge

If mill buyers thought they were dealing with high prices in the first quarter of 2008, the second quarter started out by making those prices seem like “the good old days” of sub-$500 scrap.

Buyers on the April spot market ran into per ton price increases of from $150 to $170 per ton, depending on the grade and region. Regional aggregated spot market prices compiled by Management Science Associates (MSA), Pittsburgh, through its Raw Material Data Aggregation Service (RMDAS), show mills paid in a range of from $576 to $599 per ton for the new production scrap used to define the RMDAS Prompt Industrial Composite grade.

While #1 Heavy Melting Steel (HMS) and Shredded Scrap traded in a lower range, pricing for those grades also moved up by $150 to $160 per ton in April compared to March.

Regionally, buyers in the North Midwest region faced the highest prices, with mills paying an average of $599 per ton for prompt industrial grades and $514 per ton for #1 HMS. Buyers in other regions may have paid a few dollars per ton less, but nonetheless faced record pricing that moved in a huge leap beyond what was being paid 30 days previously.

The scope of the bull market was the topic of a session at the ISRI (Institute of Scrap Recycling Industries Inc.) 2008 Annual Convention in early April. At the event’s Ferrous Commodity Spotlight session, speakers from across the steel and ferrous scrap spectrum offered their insight into factors shaping the current market.

Steel industry analyst Aldo Mazzaferro of Goldman, Sachs & Co., New York, remarked that even with the economic slowdown, “U.S. steelmaking is short of capacity” to serve the domestic market, which is why steelmakers are charging $1,000 per ton for hot-band and $850 per ton for rebar.

American steelmakers are producing at about 90 to 92 percent of capacity, so “there’s really not much else to squeeze out of U.S. mills,” according to Mazzaferro. Additionally, the weak dollar is not making the U.S. a preferred market for imported steel, meaning “essentially there is a bidding war for imported steel.”

John Harris, a metallics buyer for ArcelorMittal based at one of its Canadian locations, remarked that scrap dealers in the United States are benefiting from the weak dollar. “No steel is coming in here [and] scrap is leaving at a faster rate because it’s a good buy anywhere in the world.”

And while the booming economies of China and India are well known for their steel and scrap consumption, Harris also noted that the Middle East is playing a role. Oil-based economies there have “$1 trillion of infrastructure projects on the books for the next 10 years, and it’s all paid for. Guess what that does for [steel and scrap] demand?” Harris asked attendees.

Harris predicted that the global steel industry will continue to enjoy strong pricing for at least the next two quarters.

He was not as certain that ferrous scrap is in an overall shortage situation, remarking that a “Russian reservoir” built up during 50 years of large-scale Soviet steelmaking and virtually no exporting means there is still scrap to be obtained. Recyclers there are just now starting to tap into this reservoir, according to Harris. “The system there is finally getting ‘greased’ to do [scrap] collection. They’re blowing and going over there.”

Long-time shredding equipment supplier Alton Scott Newell Jr. of The Shredder Co. LLC, Canutillo, Texas, offered a prediction that the world will remain “materials short” for some time, meaning recyclers will continue to experience healthy demand for their products.

While steel industry consolidation is taking hold, Newell is less certain that the scrap industry can consolidate in the same way. If steelmakers are buying scrap assets with the premise that they will be able to obtain scrap at a lower cost, he warned them that this “doesn’t work.” He remarked that new competitors come into the recycling and shredding industry much more readily, as there is a lower barrier to entry compared to steelmaking.

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.