Even before the first significant waves of snow and cold weather began hitting the U.S. Midwest, sellers of ferrous scrap could feel the warm glow of a winter fireplace in the form of rising prices for their shipments.
Domestic mills proved willing to pay some $40 more per ton for ferrous scrap, on average, in the early December buying period, while export buyers were coaxed to pay closer to just $10 per ton after a considerable spike in November.
Pricing based on surveys taken by American Metal Market (AMM) showed its Midwest shredded scrap index pricing at $271 per ton, just $2 less than the average sales price for its No. 1 busheling grade.
For ferrous scrap recyclers, it was a welcome way to close out 2016 and a long journey from December 2015, when shredded scrap was selling for $161 per ton, or 59 percent of its current value.
The welcome increase in export demand in October and November likely put some pressure on domestic mill buyers to procure supply before any waves of severe weather could put them at risk of tapping into a low-inventory market.
Perhaps more important fundamentally, domestic mill demand volumes, as measured by capacity figures collected by Washington-based American Iron and Steel Institute (AISI), also point to a reason for the upward market movement.
In the week ending Dec. 10, 2016, steel production at U.S. mills was 1.67 million tons, with mills operating at a capacity utilization rate of 70.6 percent. That compared with output of 1.48 million tons in the week ending Dec. 10, 2015, when the capacity utilization rate was just 62.1 percent.
The 12.7 percent hike in output in early December 2016 versus one year ago helps explain how ferrous scrap in December 2016 can be worth 41 percent more than it was in December 2015.
In terms of market momentum, the 1.67 million tons of output in the week ending Dec. 10, 2016, also rose from the 1.63 million tons produced the week prior, when mills were operating at 68.9 percent of capacity rather than at 70.6 percent.
The good news on the steel industry front is welcome after a trend throughout much of 2016 that involved lower output levels than in 2015. According to AISI, year-to-date production of 83 million tons through Dec. 10, 2016, remains 1.1 percent lower than the 83.9 million tons produced in the same period in 2015.
As federal executive departments prepared for their January transition in late November and early December, steelmakers may have been encouraged by statements from both White Houses that China’s sought-after designation of market economy status in the eyes of the World Trade Organization (WTO) is being scrutinized.
In mid-December, an emerging coalition called the Manufacturers for Trade Enforcement (MTE) issued a news release expressing “appreciation for the U.S. government’s continued commitment to apply its established criteria for determining whether a country is a nonmarket economy for purposes of the anti-dumping law.”
The Washington-based MTE, which describes itself as “a coalition representing more than 1 million workers in the aluminum, steel, cement, chemical, textile and other manufacturing industries,” says it welcomed comments by Obama administration Secretary of Commerce Penny Pritzker made in late November, “where she reiterated that market economy status determinations are governed strictly by six statutory factors and due process determinations.”
Contrarily, statements from officials in China, which is widely accused of shipping government-subsidized steel globally, often claim “that it should automatically receive market economy status following the 15th anniversary of its accession to the WTO on Dec. 11, 2016,” MTE says.
Increased domestic demand may be vital to keep pricing away from its lowest reaches, according to Ved Prakash of Belgium-based Gemini Corp. at the 2016 Recycling Confex Middle East in Dubai, United Arab Emirates, in early December.
Prakash said the volume of scrap that South Korea imports annually fell by 40 percent between 2012 and 2015. South Korea, he said, is not alone in its reduced appetite for imported scrap.
The result of such trends is that cross-border ferrous scrap trading has declined from a peak of 105.6 million metric tons in 2011 to fewer than 84 million metric tons in 2015. Prakash indicated 2016 could provide a slight rebound, with a potential 90 million metric tons being traded by year’s end.
Despite the slight rebound in 2016, Prakash said, “Markets are maturing [and] more countries are becoming self-sufficient” in terms of ferrous scrap. He said at their peak, South Korea, Taiwan and India required a combined 16 million metric tons of ferrous scrap imports and that it will be “difficult to replace this 16 million metric tons.”
China’s situation may bear the most watching, Prakash added. “If that nation continues to rely mainly on basic oxygen furnace (BOF) steel production, it could quickly become a net ferrous scrap exporter.”