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Ferrous
in a recovering economy
If nothing else, the recent recession has
engendered a new spirit of humility and caution in the American
business community. Economic recovery has been steady, yet painfully
slow. Many scrap metal businesses have trimmed operations in
order to achieve maximum productivity from labor and investment
in capital equipment. Moreover, there appears to be a reluctance
to expand workforces capriciously or make large investments for
expansions.
Scrap ferrous metal, however, has bounced
back better than other areas of the economy in both price and
demand. But the state of the commodity is fragile and highly
susceptible to levels of demand for new finished goods. In October
2009, for instance, mill-buying prices for No.1 heavy melting
steel delivered were approximately $240 per gross ton. This September
it was approximately $350 per ton, and dipped to the $320 range
in October. Early indications place the November price at close
to $340 per ton.
Bob Garino, director of commodities for the
Institute of Scrap Recycling Industries (ISRI) gave his overview
of scrap ferrous. “It is a slow, mild recovery we are in, but
we are recovering. We are seeing a softening in steel prices.
End-use demand for the third quarter of 2010 was disappointing.
The fourth quarter looks a little shaky as well. We are seeing
lower prices on finished steel. If you look at hot rolled coil,
for example, you can see there is some softness in the demand.
That has lowered the demand for ferrous scrap. We saw prices
drop in October and I think the assumption is that we are going
to see a firmer market in November, but the increase probably
won’t be as great as the decrease was for October.”
Garino does not believe that the higher prices paid for scrap
ferrous is a reflection of a shortage of material, but rather
a pick-up in export orders that is underpinning the general market.
“I think there’s some anticipation of better markets in the months
ahead. I don’t think anyone wants to be caught short of supply.
They may be thinking about upcoming winter weather and how it
may affect transportation. I don’t see a shortfall of material.
Mills can get what they need. We have seen a slowdown in incoming
material into scrap yards, but that is a function of price not
a function of availability.
“In the context of the last few months, take the case of finished
steel products. You have to think of it in terms of what mills
are doing. They are not going to be buying scrap unless they
have orders to fill against it, and we have observed a softening
in the finished goods market. We have also seen a contraction
in the price of hot-rolled coil, which is a sheet product used
for appliances and autos among other things. We are seeing softer
numbers in October. We are seeing that trickle-down in lower
prices in scrap as well. It’s just a reflection of a weaker domestic
steel market.
“The prices in October dropped $30 to $40 dollars a ton. And
while I think we can expect a rebound for November, it’s not
going to be as great as the drop was in October. And that’s a
reflection of currency considerations in export orders, and of
course to replace existing inventories.”
Garino does not see a slowdown of ferrous coming into scrap yards,
but believes it is a function of price, not a function of lack
of material. In an elastic market, as prices respond to demand,
so does the flow of scrap ferrous.
There is no question that there has been a slowdown in construction,
auto manufacturing and appliance sales, but the overall manufacturing
component is trending higher. According to a Federal Reserve
statistical report, United States industrial production and capacity
utilization rose 5.4 percent from September 2009 to September
2010.
“If there’s any concern on the supply side, clearly there may
be less new industrial scrap because the level of manufacturing
is not as great as it was, but it is improving, said Garino.
To get perspective on industrial scrap ferrous, American Recycler
interviewed Jody Schottenfels, vice president of operations and
sales at Marwol Metals, Ltd. Based in West Bloomfield, Michigan,
her company has been in the scrap metal business since the 1920s.
Today Marwol specializes in recovering industrial scrap from
a dozen or so manufacturing plants in southeastern Michigan.
Marwol enters into agreements with plants based on published
price indexes to recover scrap, supplies containers that are
staged at the plants and provides pick-up service. Regarding
the current state of Marwol’s business, Schottenfels said, “I’m
as good as my plants are. My ferrous accounts are not generating
as much scrap as they have in the past. Some of my plants are
down now and have been down all this year, but now their phones
are ringing and they are getting requests for proposals and putting
out bids.
“Many of my plants have gotten away from automotive. They have
diversified over the years because of what has been going on
in the auto industry over the last ten years in Michigan. I have
some plants that do military. Those are doing very well because
they have good military contracts in place. I don’t have any
stamping plants doing auto parts, but I do have one automotive
plant that is doing quite well. I have plants that do tool and
die work and plants that feed the construction, mining and forestry
industries, and their production has been inconsistent all year.”
Schottenfels continued, “I would like to see more loads out of
my plants. They are not generating a whole lot. Instead of getting
a couple of loads a month, I’m getting one load, but there’s
a promise that it may pick up and I can buy scrap as they generate
it.” Marwol sells its scrap to a handful of scrap yards
American Recycler also spoke with Rich Brady, executive vice
president of the ferrous commercial group for the OmniSource
Corporation, a wholly owned subsidiary of Steel Dynamics, Inc.
Founded in Fort Wayne, Indiana more than 65 years ago, OmniSource
has grown to become one of North America’s largest processors
and distributors of scrap and secondary metals. “In 2008 we shipped
5.6 million tons of recycled steel, but for 2010 we will be slightly
down from that probably somewhere north of 5.2 or 5.3 million
tons,” said Brady.
Supplementing its company-operated scrap collection sites, OmniSource
acquires metals from industrial scrap generators, other scrap
companies, peddler-dealers and construction companies. The company
also manages and operates metal recycling programs for manufacturing
companies and has national brokerage and trading operations serving
metals buyers and sellers.
OmniSource processing facilities are located predominantly in
the midwest and the southeast. “On our steel products, we are
primarily a domestic supplier. We do ship some export via container
for steel shred, but the majority of our steel scrap production
stays domestic,” Brady explained. “I would say the state of the
market is very competitive today and that will likely continue
given limited volumes, but I believe the market will continue
to improve as the general economic conditions, particularly in
the steel business, recover.”
For the past nine months, Brady has seen an improvement in 2010
versus 2009 volume; however, margins continue to be strained.
Primarily, he attributes it to availability issues due to the
general economy being weaker. “There just is not as much scrap
available that’s being generated, primarily from industrial sources.”
As for obsolete scrap, he is seeing a much greater demand from
the export market than OmniSource has experienced historically.
“I don’t believe it is necessarily a shortage, but more a function
of the obsolete arena today being driven by an overcapacity in
shredding coupled with strong export demand,” Brady said.
Over the past 10 years, the number of shredder installations
in the United States has gone from roughly 200 shredders to over
300. That does not include shredders that have been upgraded
to higher capacities. “You don’t have to go back long ago, 10
or 15 years, when shredders had a capacity of 30 to 40 tons an
hour. Shredders that are now running 150 to 200 tons an hour
have replaced some of those older machines,” said Brady.
This explains why there is a huge demand for feedstock for shredders.
There are more shredders operating at higher capacities that
accept a wider range of metal inputs. Shredding operations are
also using more sophisticated downstream sorting technologies
for finer separation of ferrous, as well as nonferrous, materials.
Many shredding companies are looking at developing feeder-type
facilities in an effort to garner larger volumes of ferrous to
put into these bigger machines. These machines require tens of
thousands of tons of feedstock. Brady is seeing more efforts
to establish base sourcing for shredders, looking to develop
locations that are complementary and regional in nature where
shredders can obtain feedstock on an economical basis.
“I don’t think anyone is anticipating some huge, robust recovery,
but a slow, steady improvement is probably in the works for 2010
and I think that will bode well for the business in 2011,” Brady
concluded.
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