Price volatility has been reintroduced into the ferrous scrap market in the summer of 2012, causing the moderator of the 2012 Institute of Scrap Recycling Industries Inc Commodities Roundtable Forum ferrous scrap session to ask panelists what had caused the return of roller coaster pricing.
The answer to the question, posed by moderator Mr Frank Goulding of Newell Recycling of Atlanta LLC, was tied to the lower operating rates of steel mills in the United States by panelist Ms Michelle Applebaum of MARI.
Ms Applebaum said that "As mills adjust their production levels, I would estimate that for the next five to seven years, until mills start operating at a higher capacity, ferrous scrap price volatility will be part of the picture."
Ms Applebaum said that to combat the volatility, many steel producers are turning to direct reduced iron and other scrap supplements, and the timing may be right to do so.
Previously, the high cost of natural gas presented a barrier to the widespread use of the feedstock. However, the abundance of natural gas being produced in the eastern United States has lowered that cost significantly.
Panelist Mr John Keyes, a district trading vice president with Tube City IMS, said that mills that are concerned about a shortage of ferrous scrap may not need to worry too much. He added that "I'm amazed at the number of places scrap will come from over the years."
More recently, Mr Keyes said he has seen scrap coming from the demolition of paper mills throughout North America and sugar mills in the Southern US and the Caribbean region. He added that "It's a resilient market; when the scrap price makes it affordable, demolition follows."
On the demand side, Mr Keyes said the recent slowdown in Chinese economic growth has had a ripple effect on ferrous scrap demand in Turkey. He added that "Chinese billets are being sold there for a cheaper price, so Turkish mills are shutting down their electric arc furnaces while keeping their rolling mills going."
When asked about the narrow price difference between prime grades of ferrous scrap and shredded and heavy melting scrap grades in the summer of 2012, panelists pointed to melt shop preferences. Even though prime grades may have been tempting, EAF melt shop managers tend to not like change.
Mr Keyes of IMS agreed with that assessment, noting that buyers from integrated mill with more flexibility in their feedstock were the winners during that timeframe, when big, heavy square things were on sale.
Panelist Mr Young Jin Chang of CME Group provided an overview of the CME's new futures contract service for the US Midwest #1 Busheling Ferrous Scrap grade tied to the American Metal Market price and she fielded questions on how it might be of use to ferrous scrap traders. Goulding of Newell Recycling predicted that his company will probably continue to sell scrap at the beginning of the month but said the index could provide a good indicator of where the scrap market is headed."
Mr Keyes of Tube City IMS said that should the index take hold, it could mean more frequent communication when it is purchasing scrap on behalf of mill customers. He added that "It's their money. We'd be joined at the hip more than we already are."
The ISRI Commodities Roundtable Forum was held on September 11th 2012 and September 12th 2012 at the Hyatt Regency Chicago.
Source - Recycling Today
(www.steelguru.com)
