demand settles in for ferrous scrap market
by Brian R. Hook
demand for steel is keeping ferrous-metal recyclers busy across
North America, from small family-owned operations to large publicly-owned
Exports of ferrous scrap metal
increased 13 percent in 2005 according to numbers provided by
the Institute of Scrap Recycling Industries Inc., a trade group
representing more than 1,200 companies that process, broker and
consume scrap commodities.
The Washington D.C.-based industry
group reported that ferrous scrap metal exports totaled 10.7 million
metric tons in 2005 compared to 9.5 million metric tons the year
before. Ferrous scrap metals are magnetic metals derived from
iron or steel.
Bob Garino, director of commodities
for the trade group said demand has been strong and he expects
the upward trend in exports to continue. He said a lot of the
global demand has come from China due to strong industrial growth.
This growth consumes a lot of resources, including coal, iron-ore
and importantly for recyclers, ferrous scrap.
China is not a huge user of scrap. It mostly produces
new steel. Garino said the global demand for ferrous scrap, however,
boils down to the level of industrial production. “You’ve
got to figure that scrap is a commodity that is bought, not sold,”
he said. “It is a function of the level of global economic
activity and domestic activity.”
Garino said that in addition to China, there
is strong demand in India, Korea, Taiwan, and Eastern Europe.
“They are big buyers of shredded material,” Garino
World crude steel production, overall, increased
by 5.9 percent in 2005 according to the International Iron and
Steel Institute. The Brussels-based trade group represents more
than 190 steel producers that produce more than 60 percent of
the world’s steel.
Steel production totaled 1.1 billion metric tons
in 2005. The IISI said China accounted for most of the increase,
where production rose by 69 million metric tons. Total production
in China was 349.4 million metric tons, 30.9 percent of the world’s
The IISI reported that in 2005 production of
steel in China outstripped demand. The group said the government
has now closed inefficient capacities and is concentrating a greater
share of its output of crude steel under the control of several
In North America, the IISI reported that an already
consolidated steel industry reduced overall steel production in
line with demand during 2005. The group said that high inventories
built up during 2004 were liquidated. Total output throughout
the continent fell by 7 million metric tons or 5.3 percent to
127 million metric tons.
These developments are just some of what Garino
described as “tugs and pulls” of the export market.
They have an impact on the demand for scrap ferrous metal and
ultimately impact prices. Garino said that a composite-price benchmark
that he tracks averaged $192 a ton in 2005 compared to $212 a
ton in 2004. But prices in 2005 climbed as high as $237 a ton
and dropped as low as $120 ton. “It can be very volatile,”
Strong demand for ferrous scrap, however, should
not have an impact on supply, Garino said. “When prices
go up, more scrap comes out of the woodwork. We are not worried
about running out of scrap anytime soon,” he said. Garino
often describes the United States as the Saudi Arabia of scrap,
supplying the world with scrap metal instead of oil.
The ISRI estimates that the overall scrap-processing
capacity in the United States exceeds 140 million annual tons
of ferrous scrap. That is more than double the current volumes
being purchased in the United States for domestic consumption
and export to other countries.
Richard Becker, chairman and chief executive
officer of Fenster Metals Inc. in St. Louis, said the global demand
for scrap ferrous metal has had an impact on his business. “The
impact of export has caused our market prices to increase,”
Fenster Metals is a family-owned operation in
its fourth generation. It is a buyer and processor of both ferrous
and non-ferrous metals. It sorts and sizes the metals to ship
by rail from its facility to mills and foundries to be re-melted
into new metal. It provides services to the manufacturing industry,
including fabricators, machine shops, tool and die, demolition,
construction and mechanical contracting companies in the Midwest.
“Competition is our basic problem in obtaining
scrap metals. There has been somewhat of a drop in United States
manufacturing and therefore a drop in scrap metal tonnage,”
Becker said. He said a downturn in the auto and housing industry
would hurt his business. “The metal recycling industry is
a market driven by global industry,” he said.
Jeff Solomon, chief executive officer of Globe
Metal Recycling Services Inc. in Montreal said the export market
for ferrous scrap metal is also having a positive impact on his
business with respect to pricing. “When export is busy,
the domestic mills are forced to pay higher prices for scrap to
secure adequate supplies,” Solomon said.
“The higher prices allow for scrap to be
transported greater distances thus improving our volumes by bringing
more scrap into the marketplace.”
Solomon said Globe Metal specializes in industrially
generated materials. The privately held company with branch facilities
in Cleveland, Los Angeles and Fort Wayne, Indiana handles a large
volume of steel scrap from factories. The company also handles
a large volume of steel from machine operations and it also operates
an over-the-scale purchasing facility where it purchases obsolete
scrap, from old equipment to old stoves.
Solomon said that so far, there is not any problem
getting material. “However, if we continue this folly of
sending all of our manufacturing off shore, I could see some problems
in the future of adequate supplies of prompt industrial scrap,”
“The only problem I see is the market taking
too severe a correction, thereby bringing us back to the times
of working like horses and not making any money doing it.”
Schnitzer Steel Industries Inc. is one of the
nation’s largest recyclers of ferrous metals. It currently
processes over 4.9 million tons of recycled metals a year. The
publicly owned company is based in Portland. Operations are concentrated
on the West Coast and in the northeastern seaboard regions, where
multi-modal freight options provide the company with smooth access
to markets and materials from around the globe.
John Carter, chief executive officer of Schnitzer
Steel, told investors after the company’s latest earnings
report that the overall business is growing. “The positive
long-term fundamentals supporting all our business segments remain
intact,” he said.
Carter said that although there continues to
be good worldwide demand for scrap metal, export markets have
been unsettled since the second half of 2005. Part of that volatility
was with pricing in the Asian export markets. The company reported
sales orders in its last quarter were an average net price per
ton of between $185 and $195.