Strong demand is boosting the prospects for the scrap-steel market.
“We are fairly optimistic about 2007,” said Bob Garino, director of commodities at the Institute of Scrap Recycling Industries Inc., a Washington DC trade group, which represents over 1,400 companies around the country that process, broker and consume various scrap commodities. “I don’t see a whole lot of weakness here,” he said.
The market for scrap steel is a bit stronger and the strength of the market is lasting longer than what many in the industry anticipated, Garino said. “I think there were expectations that the first quarter might not be quite as robust as it is turning out to be.”
Supply is tight, mill demand is strong and exports are solid. “What we’re seeing is ongoing strength and there aren’t any good cheap alternatives,” Garino said.
The United States imported 4.1 million metric tons of iron and steel scrap in 2006, up 25 percent from 2005. The country exported 11.2 million metric tons, up 3 percent, Garino said. China, Taiwan, Korea and India are some of the major markets for scrap.
“We’ll always be net exporters” of steel scrap, Garino said. “If you’re a buyer of ferrous scrap, not only do you want a consistent rate of shipments, but also you really have to worry about the quality. That is very important to a steel maker.”
The trade group launched its first trade mission to India in January to improve the prospects for the scrap market. A 10-day, 3-city visit included a 25-member delegation. The group met with members of the business community and government officials in India to strengthen ties between producers and consumers of scrap.
Exporters in the United States shipped $367 million of scrap materials to India in 2005, with ferrous metal exports increasing 200 percent over 2004 shipments, according to the Institute of Scrap Recycling Industries. The group estimates that during 2005 scrap materials made up 5 percent of total exports from the United States to India.
The trade organization led a similar trade delegation to China to explore business opportunities for scrap exporters from the United States in 2005.
“For our members it is about demand. We depend on a firm industrial base both here and abroad,” Garino said. “As industrial production goes, so goes scrap.”
The International Iron and Steel Institute, a trade association in Brussels, Belgium, reported that world, crude steel output reached 1.2 billion metric tons in 2006, an increase of 8.8 percent over 2005. The 2006 amount represents the highest level of crude steel in history and is the third consecutive year of output of more than 1 billion metric tons.
The increases continue. The trade group estimated world, crude steel production hit 107.9 million metric tons in January, 13.5 percent higher than in the same month of 2006. China, Japan and the United States continue to be the top three steel producers.
Around the world there continues to be a lot of consolidation in the steel industry among the big producers. Will this trend trickle down to the scrap steel market?
“I think we will probably see in 2007 that the scrap processing industry most likely will see an increase in merger and acquisition activity,” Garino said.
One of the companies busy consolidating is Metal Management Inc. in Chicago, one of the nation’s largest scrap metal recyclers with 50 recycling facilities in 16 states.
Metal Management acquired TIMCO Scrap Processing Inc., for an undisclosed amount in February. TIMCO is a smaller, full-service processor and supplier serving Texas. The company handles approximately 120,000 tons of ferrous scrap per year.
Daniel Dienst, chairman and chief executive officer of Metal Management, described the domestic market for scrap metals as “sluggish” during the company’s third fiscal quarter, which ended December 31, 2006. He said that many customers of Metal Management adjusted their inventory levels toward the end of the calendar year.
But the market is changing. “Demand for ferrous scrap and ferrous scrap pricing in the United States have improved significantly since the turn of the calendar year and international demand for ferrous scrap remains robust,” Dienst told investors.
Schnitzer Steel Industries, Inc., headquartered in Portland, is also seeing increased demand. The company is also one of the largest manufacturers and exporters of recycled ferrous metals in the United States. It currently operates 32 facilities in 11 states.
“The long-term fundamentals and outlook for our businesses remain strong,” John Carter, president and chief executive officer told investors in January. He said that the export markets for ferrous metals remain strong and domestic prices are strengthening.
“Consolidation is hitting everywhere. It has already taken foot in the steel industry and some has happened in the scrap industry. But neither industry has finished the cycle of consolidation,” said Bill Heenan, president of the Steel Recycling Institute in Pittsburgh. The industry association promotes the recycling of steel products.
“The prospects for the ferrous scrap market continue for the fourth consecutive year to be excellent,” Heenan said. “2007 should be a good year across the world.”
The association estimates that each year more steel is recycled than aluminum, paper, glass and plastic combined. It estimates that the recycling rate for steel increased to a record 75.7 percent in the United States in 2005, five percent higher than in 2004.
“China and India’s expansion is having a dramatic impact on the world economy and as they try to come out of the third world and into the first world, steel is literally the foundation of this transition,” Heenan said. “Thus, the economy improves.”