Demand up despite recent market dips
There was a classic stare-down and, true to
form, somebody blinked. The participants were a large East Coast
scrap exporter, loaded with inventory and headed into year-end,
and hungry Turkish scrap buyers looking for a deal. In the end
the exporter, concerned that the Turks might choose to purchase
scrap from Europe or elsewhere, dropped their prices significantly.
We are truly in a global economy.
The impact of that deal sent ferrous scrap
prices lower by as much as $40 to $50 per ton along the East
Coast and across the country in the beginning of November. Some
shredders and mills dropped prices accordingly because they felt
that market demand required it. Others opportunistically capitalized
on the situation and increased their margins just because they
could. The rumor mill, whipped into a frenzy by concerns about
the European economy, was that demand for scrap and steel had
Tony Elias, of Elias Scrap Metal in Barnesboro,
Pennsylvania, received a call on November 1 that his prices were
declining. “I told them I would ship only enough to maintain
my monthly cash flow,” said Elias, “and that’s exactly what I
did.” Elias wasn’t alone. John Foreman, of Guernsey Scrap Recycling
in Caldwell, Ohio, got the same call and had a similar response.
“I told them that they wouldn’t be seeing much material from
me this month,” he said.
It was widely reported that demand for scrap
and steel would be slack for November and December, with business
improving for the first half of 2012. Reports cited several concerns
including deteriorating weather, rising freight costs and weaker
export demand from Turkey and China, amongst others. With that
in mind, many United States domestic steel service centers opted
to limit inventory purchases, choosing instead to wait the market
out and purchase steel just before they anticipate any price
increases. This put additional pressure on the scrap market to
However, market dynamics changed dramatically
by mid-November. News of lower scrap prices brought a surge of
new orders for scrap and steel both domestically and abroad,
while the flow of scrap into mills slowed to a trickle.
Tony Elias got another phone call from his
buyer. “They told me they were raising my prices back up,” he
said. His buyer explained that they had dropped prices at the
beginning of the month because they had anticipated that prices
would be down. Because of that they weren’t getting enough material
in to fill their orders. “So I told them that I’d start shipping
again,” Elias said.
Despite uncertainty in the markets, demand
is up on the West Coast as well. Don Roemer, of Cascade Auto
Recycling in Grants Pass, Oregon, sells to several large scrap
exporters. “Even though my prices are down $25 per ton so far
this month, I’m still getting more for my scrap than I did last
year. On top of that we shipped 20 percent more material in October
of 2011 than we did in the same period in 2010.”
In fact, with the exception of the price
collapse of 2008 at the height of the Great Recession, scrap
prices have continually improved year-on-year. In its fiscal
2011 annual report, Schnitzer Steel Industries, Inc. reported
that both revenues and profits improved by approximately 50 percent.
The report cited that some of the driving factors for that growth
were continued strong demand for exports and the continued recovery
of domestic demand. This increased demand led to higher average
prices and increased revenue across all segments.
In a statement released by Schnitzer, Tamara
Lundgren, president and chief executive officer, said, “Looking
ahead to 2012, we expect the positive benefits of the investments
and acquisitions we have made as well as overall increasing demand
for scrap metals to continue.”
Equipment manufacturer Caterpillar, Inc.
reported 2011 sales of $58 billion and is forecasting a 20 percent
increase in 2012. Orders for durable goods have steadily improved.
United States automakers continue to report better sales and
profits as well. Industrial production in October increased seven
percent, topping forecasts at the fastest rate in three months.
These are just a few of many reasons to believe that demand for
scrap metals will continue to improve in the foreseeable future,
despite current market fluctuations.
There is reason for optimism with regard
to the demand for nonferrous metals as well. China returned to
the copper market with huge buys in October. Morgan Stanley Australia,
Ltd. has reported that orders to withdraw copper from London
Metal Exchange (LME) inventories in Asia nearly doubled in November,
a likely sign that demand has increased. Total LME inventories
of copper fell to the lowest level since February 23.
Forecasting ahead, 2012 is shaping up to
be a better year. Schnitzer Steel Industries, Inc. believes that
there will be an overall increase in demand for scrap metals,
citing the growth rates of a number of the world’s emerging economies.
Even a slight increase in United States domestic demand will
make for a very comfortable year.