Scrap Metal Shortage Continues
Market Correction Expected to Surface
by James I. Miller
What do statues, bridges, locomotives, and torpedoes
have in common? It’s an odd mix, but all of them have been stolen
and cashed in for their scrap value over the past 12 months in various
places around the world. The global shortage of scrap metal has produced
opportunity for many, and created unprecedented market conditions for
buyers, traders and consumers of ferrous metals throughout the industry.
Around the globe
Much of the available scrap metal in North America is being
bought up and shipped overseas. Emerging manufacturing economies in Brazil,
Russia, India, China and Korea are gobbling up ferrous scrap at rapidly
increasing rates. Of these scrap consumers of course, China has most voracious
appetite. According to the Chinese government, the 48 major seaports in
China handled more than 231 million tons of goods in January of this year
alone, an increase of 15.1 percent over the same time last year. It is
estimated that Chinese industry today consumes about one third of the
world’s flat-rolled steel production.
Hari Agrawal is president of CNA Metals, Inc. His Texas-based
scrap metals exporting business has been booming of late, arranging transport
of some 3,000 tons of ferrous scrap and over 800 tons of non-ferrous to
multiple destinations in China each month. A lot of his product originates
in South America, and half of his total volume winds up in Chinese ports.
“We make regular shipments of ferrous scrap to
Taiwan, South Korea and India,” said Mr. Agrawal. “Until more
recently, India was our largest customer, but over the past year, the
volumes we ship to China have grown considerably faster. As a result,
only about 20% of our total business comes from India today,” he
But the great demand for scrap has a downside as well,
and nowhere is that more true than in the former Soviet Union. Political
uncertainty and the fledgling economies of most republics there have caused
many standards of living to fall. The resultant despair and high prices
for scrap are blamed for a rash of unusual activity. Reports from the
BBC indicate pieces of infrastructure including manhole covers, electric
power lines and an entire bridge have come up missing. In addition, metal
thieves have reportedly stolen a piece of history – the first locomotive
produced there, dating to 1924 – from an open-air museum in the
city of Donetsk, in the eastern Ukraine. Even more troubling is that scavenged
parts from both mothballed and active warships of the Northern Fleet –
Russia’s navy – have turned up in scrap metal yards throughout
The enormous volumes of scrap metal and other goods heading
overseas have impacted the shipping business as well. According to Hari
Agrawal, freight rates for transoceanic shipments have increased 250 to
300 percent in the past year. That means significant increases in costs
of doing business, and ultimately higher prices for those goods produced.
In the scramble to meet this demand, port congestion
and lengthy delays have become problems on both ends. Some industry experts
suggest that over 20% of the world’s bulk shipping capacity is currently
tied up in ports – either waiting to load, or waiting to berth for
The solution? More ships, larger ships, more ports and
better port facilities to accommodate the volumes of raw material on the
move. All of these things take time and significant capital investment.
Immediate relief is unlikely.
On the home front
With pricing at record levels, aside from buyers, few people
in the scrap business are complaining. Dave Norris, general manager of
D&D Auto Salvage in Pittsburgh, Pennsylvania – one of the highest
volume auto recyclers in the region said, “Every year, we normally
get busy toward the end of March. But this year, the action began about
six weeks sooner than usual. The scrap peddlers are much more aggressive,
and we’re seeing material show up in our yards that people might
not otherwise have bothered with. The incentive to ship as much scrap
as possible is bringing more people into the market, and material from
places we don’t typically see,” he observed.
It may be ironic, but increasing demand for old drums,
retired farm implements or that rusted old body on blocks is a time-proven
sign the economy is growing. Midwest sources report they are paying higher
prices for steel, iron and non-ferrous items to fuel the U.S. economy
and to meet competition for scrap products from China.
Along with robust demand come the usual headaches. Dave
Norris comments, “We’re sending between 20 and 30 full loads
of scrap to shredders or mills every day. The backups there to unload
are getting longer and longer. It’s not uncommon for our drivers
to wait two to three hours now, just to tip the load and head back to
the yard,” he said.
On the supply side, there are challenges as well. U.S.
automakers have a lot of clout with the mills. They buy so much steel
that it’s common for them to provide raw material to their “tier
one” parts suppliers. In cases where suppliers source their own
steel, availability problems are forcing them to ask their automaker customers
to flex that muscle and arrange for material, ensuring the flow of parts
to their assembly lines. To date, the automakers have managed to avoid
paying surcharges – some as large as $125 per ton – that many
steel mills have applied to new orders booked for near term delivery.
What to expect
A resurging U.S. economy and competition from China and other
foreign economies for ferrous scrap has driven pricing steadily upward.
But recently, signs of a market adjustment are beginning to surface. As
much of North America emerges from a long, cold winter, the seasonal upswing
in production for most scrap operations affected by the cold is expected
to increase the supply of available scrap on a regional basis across the
United States and Canada.
In addition, with so much material tied up in transit
to overseas customers, it’s difficult to gauge just how acute the
shortage actually is. Snags in supply lines put pressures on buyers to
find more material. Some analysts believe the shortage is in part, artificial.
In turn, orders could be canceled when supply catches up with actual demand.
Hari Agrawal sees a correction ahead. “The scrap
market must adjust to these pressures,” he said. “I expect
pricing to remain strong over the next four to five months, with some
slight movement up and down. But there is some skepticism in the Far East.
There is just no way that pricing can stay at these levels long into the
future,” he added.
Charles Bradford, president of Bradford Research/Soleil
Securities in New York City sees a softening in scrap steel pricing as
well. “Historically, there has always been seasonal variation, with
weakening in the spring. Asian prices are beginning to fall right now
in both the Chinese and Korean markets. There’s been a lot of attention
focused on China, but steel imports were actually less there in 2003 versus
two years before,” he said.
“In addition, whenever there is devaluation in
the dollar, we typically see scrap prices soar,” continued Mr. Bradford.
“With more stability in our own currency, scrap steel pricing should
recede,” he said.
How good a time is it to cash in that old scrap? Bradford
Research reports Ispat Inland, Inc., one of this country’s largest
producers of steel, has two blast furnaces that were retired in 1991.
The steel maker is currently dismantling those old furnaces – for