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 fallen precipitously.  

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 lower prices.

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.