September/October 1996
No. 1 bundles at $220 a ton? A ferrous scrap shortage? These were just two of the predictions made by scrap executives and steel analysts at a recent industry meeting. For more, read on...
It sounds like an outlandish prediction: The price of No. 1 industrial steel bundles will top $200 a gross ton—not in the far-off, distant future, but possibly within the next year or two.
Though such a price forecast may sound like pie in the sky, there are solid market fundamentals that support it, according to the presentations of four ferrous scrap executives speaking at a steel industry forum this summer: Albert Cozzi, president of Cozzi Iron & Metal Inc. (Chicago); Richard A. Jones, vice president of marketing for Luria Brothers (Cleveland); John J. Mike, president of Simsmetal America (Richmond, Calif.); and Robert W. Philip, president of Schnitzer Steel Industries Inc. (Portland, Ore.).
On the demand side, for instance, an additional 12 million to 15 million tons of new steel production capacity is expected to come on-line in North America within the next 12 months, and these producers will rely heavily on scrap for a substantial portion of their feedstock, Cozzi said at the session, sponsored by the American Metal Market.
This new demand, coupled with existing consumption, will make the ferrous scrap market active and tight through 2000, the speakers agreed. “For 1996 and the near future, scrap will be in demand and in short supply,” Philip declared, though quickly adding that he did not “foresee any U.S. steel minimills shutting down for lack of scrap.”
Concurring with this view on near-term scrap requirements, Jones predicted in particular “higher demand levels for low-residual prompt industrial or mill home scrap.” At the same time, he suggested, as more and more of the steel industry turns to continuous casting processes, expectations are for supplies of home scrap to dwindle.
Also forecasting supply tightness ahead, Mike said he anticipates less generation of home scrap and industrial material in the next decade due to increased efficiencies at steel mills and industrial plants.
Putting It All in Perspective
Given this supply-demand scenario, there could be “a steel scrap shortfall of about 62 million tons” by 2010, conjectured forum moderator Peter F. Marcus, managing director of PaineWebber Inc. (New York City). In fact, even this is an “optimistic” scenario, he said, pointing out that the shortfall could be much greater.
In an attempt to fill this void, steelmakers will turn to scrap “substitutes” such as DRI, HBI, and iron carbide, Cozzi noted, but he predicted that supplies of these feedstocks will be “woefully inadequate” to satisfy all of the projected new steelmaking capacity. Thus, steelmakers will also have to look to scrap previously unavailable to them, particularly the material that is currently exported, he said.
And the ultimate result of these high-demand, tight-supply realities, Cozzi continued, is the likelihood that scrap prices will rise considerably: to $220 a gross ton for No. 1 bundles, delivered to the consumer, assuming a stable dollar and no recession. “As far as to when,” he said, “I will hedge and say within the next 12 to 18 months.”
Offering another reason why bundle prices could—or perhaps should—climb significantly in the future, Cozzi pointed out that, in 1974, scrap sold for about $160 a gross ton while hot bands fetched around 6.5 cents a pound. Today, even though hot band prices are depressed, they are—at 14 cents a pound—more than double their 1974 level, while scrap prices still sit around $160 a gross ton.
Adding yet another reason to expect higher ferrous scrap prices, Marcus noted that “in early 1996, steel scrap prices were at record levels, even though the export price of hot-rolled band, f.o.b. Europe, had dropped 45 percent. ... This pricing relationship, which never before occurred in the history of the steel industry, appears to provide meaningful evidence that steel scrap prices will be relatively higher in the future than in the past 20 years.”
The European Outlook
Providing a view of the European scrap market at the same forum, Guy Amedro, director of scrap purchasing and recycling for Usinor Sacilor S.A. (Paris), forecast a small increase in scrap consumption in some parts of Western Europe and a decrease in others. In Eastern Europe, Turkey, in particular, is expected to have a greater appetite for scrap, which will help drive—and be satiated by—higher European scrap collections between 1996 and 2000.
In the future, Europe will generally need to consume more of its own scrap, which will limit the amount of material it exports, Amedro said.
Focusing on Ferrous
To learn more about the prospects of the ferrous scrap and steelmaking markets, check out ISRI’s ferrous roundtable, slated for Oct. 10 at the Pittsburgh Airport Marriott. The event will feature John J. Mike of Simsmetal America (Richmond, Calif.), Michelle Galanter Applebaum of Salomon Brothers Inc. (New York City), Chris Hamm of Ford Motor Co. (Dearborn, Mich.), and Dick Stauffer of North Star Steel Co. (Minneapolis). For more information on the event, contact ReMA at 202/737-1770. For hotel reservations, contact the hotel directly at 412/788-8800 and ask for the roundtable’s special room rate of $119 per night, single or double. •
No. 1 bundles at $220 a ton? A ferrous scrap shortage? These were just two of the predictions made by scrap executives and steel analysts at a recent industry meeting. For more, read on...