by MAURA KELLER
At the 2021 ISRI fall meetings in October 2021 in Charleston, South Carolina, Joe Pickard, ISRI’s chief economist and director of commodities, noted that world steel production fell 1.4 percent year over year in August, but overall is up 10.6 percent year to date.
“Business conditions faced by global steel users improved at a slower pace in September, according to the latest Global Steel Users PMI™ data,” Pickard explained. “While output growth quickened for the first time since May, total new orders rose at the softest pace in the current 15 month sequence of expansion. The slowdown was exacerbated by a renewed reduction in foreign demand. Steel users continued to report a slight easing in price pressures during September, which pushed the rate of selling price inflation to the slowest for seven months.”
So, what does this mean for the ferrous market and ferrous scrap, in particular? In October 2021, ISRI’s U.S. ferrous market snapshot showed steel production up 19.5 percent year to date compared to 2020; imports up 25.5 percent; material processed up 17.8 percent; scrap exports up 9.6 percent and scrap imports up 38 percent.
Specifically, the ISRI panel pointed out that U.S. ferrous scrap exports in 2020 reflected the continued prominence of Asia as a quality scrap destination, according to Blake Hurtik, editor of Argus Metal Prices. Turkey imported 4 million metric tons of ferrous scrap, up 3 percent year over year. Taiwan imported 2 million metric tons in 2020 – a 12 percent decrease from 2019. Mexico was 2020’s biggest gainer, importing 1.9 million metric tons, a 32 percent year-on-year gain. Bangladesh, Canada and Pakistan also took more U.S. scrap. As Hurtik explained, Vietnam posted the biggest loss, importing 990,000 metric tons, a 21 percent decrease from 2019. India, Pakistan, and South Korea also imported less scrap in 2020.
More recently, according to the U.S Geological Survey (USGS), in November 2021, purchased steel scrap receipts decreased slightly, recirculating scrap production decreased by 5 percent, and iron and steel scrap consumption decreased by 5 percent compared with those in October 2021. What’s more, stocks of purchased and home scrap decreased slightly from those at the end of October 2021.
The USGS also indicated that in November 2021, exports of iron and steel scrap decreased by 9 percent from those in October 2021. Turkey was the leading destination for exports, accounting for 26 percent of the total tonnage, followed by Mexico (12 percent) and Taiwan (9 percent). New York, New York, was the leading U.S. Customs district by tonnage of exports, accounting for 18 percent of the total, followed by Los Angeles, California, (15 percent) and San Francisco, California, (11 percent). Imports of iron and steel scrap in November 2021 increased by 9 percent from those in October 2021. Canada was the leading country of origin, accounting for 78 percent of the total tonnage of imports, followed by Mexico (13 percent) and the Netherlands (8 percent). Detroit, Michigan, led the U.S. with 46 percent of the total tonnage of steel scrap imports.
According to Chris Witherspoon, director of vendor relations at Rubicon, the COVID-19 pandemic has been a real driver of pricing over the last couple of years. “In 2020, the market fell like most other commodity markets likely due to a lack of demand, and in 2021, once companies and employees got back to work, pricing rebounded,” Witherspoon said.
Indeed, while President Joe Biden’s proposed $2 trillion in U.S. infrastructure spending contains plenty of opportunities for ferrous metals, according to experts on the ISRI 2021 “Ferrous Spotlight: Ferrous Markets to Stay in Full Swing?” panel, certain issues such as oil and gas pricing, and the availability of shipping containers are keeping demand high and supply low for new and scrap metals. In addition, ISRI experts pointed out that strong Chinese demand continues to loom over the ferrous scene as business begins to recover from the COVID-19 slowdown.
Overseas appetite and commercial building projects also impact the ferrous scrap metal market. As Witherspoon pointed out, when pricing is up on exporting this material, domestic pricing often rises to try to keep the raw material in the U.S.
“The pandemic paused many building projects, and now that things are opening back up, there is an influx of projects and we are seeing a high demand for metal,” Witherspoon said. “Driver shortages, temporary closures of scrap yards, and delays in building projects have also hit this market like many other commodity markets.”
As the volatility of the ferrous scrap market continues, recycling industry professionals need to pay attention to some key factors to understanding the market outlook. These include government building projects, infrastructure updates, the strength of the U.S. dollar, and overseas demand.
Looking Ahead
So, what does the future of the ferrous scrap market look like? Witherspoon pointed to mill expansions and new openings that would give scrap yard owners more options to sell, which should consolidate competition and drive prices up.
In addition, the continued supply chain and shipping issues will have an ongoing effect on the ferrous scrap market. For instance, as Hurtik explained, scrap shipping costs will eat into margins for the foreseeable future due to high shipping container prices, a driver shortage in the U.S. trucking industry, and railroad giant CN’s $34 billion bid to acquire Kansas City Southern. Hurtik indicates the ongoing semiconductor shortage could affect domestic vehicle production for another six months. According to ISRI, these issues occur amid a 2020-2023 capacity boosting spree by ArcelorMittal, CMC, Nucor, SDI and U.S. Steel. Because of those additions, production of merchant bar quality rebar, tubular and sheet plate steel will need high quality prime scrap.
Continued consolidation activity through mergers and acquisitions within the ferrous market also will lead to fewer players in the market as aging owners of recycling companies decide to cash out after a period of high selling prices. Their reasons for merging and acquiring other entities within the ferrous metal industry can vary from a need to expand into adjacent geographic markets, consolidate synergies, or better position their company for the next market up-trend and the recovery from the ongoing pandemic.
For example, in October 2021, Orange, California based SA Recycling purchased Ohio based PSC Metals, Capital Scrap, Southern Scrap and Metals USA. Prior to that, in August 2021, SA Recycling deepened its presence in the southeast U.S. with the acquisition of scrap metal processor Southern Recycling. The company first began acquiring scrap businesses located throughout the southeast U.S. in 2016 when it purchased 17 scrap metal processing facilities owned by Newell Recycling Southeast. This is simply one example of the depth of the consolidation happening within the ferrous scrap market.
Experts agree that as large mills that are flush with cash buy up smaller scrap yards and shredders, this industry consolidation will streamline the export opportunities and increase the competition for scrap. Continued M&A in the steel industry will lead to fewer players in the market and those that remain, will be larger and better equipped to handle market challenges.
“With the surge of need and projects, mills had a great 2021, likely attributable to high revenues based on the unprecedented value of their end products,” Witherspoon said. “With these large profits, we expect to continue to see these mills acquiring small to medium sized scrap yards in order to own the feedstock for their own processes, putting them in an advantageous position.”
Published in the March 2022 Edition
