January/February 1996
Experts at ISRI’s inaugural ferrous roundtable looked at the future prospects of the steel and ferrous scrap markets, as well as the potential for a scrap shortage and the relationship between scrap and scrap “substitutes.”
By Si Wakesberg
Si Wakesberg is New York bureau chief for Scrap.
After racing full steam ahead for much of 1994 and 1995, the steelmaking and ferrous scrap recycling industries finally showed signs of slowing this past fall, as could be seen in the steadily declining prices of auto bundles. The weighted average for November bundles, for example, was $152.67 per ton—4.6-percent less than October’s $160.12 per ton and 7.2-percent down from September’s $164.62 per ton, according to published figures.
Autumn also saw abundant scrap availability, with mills reportedly putting off raw material purchases until the end of the holiday season.
At the same time, however, speakers at ISRI’s first ferrous roundtable, held in November in Cleveland, offered generally positive predictions for steel and scrap demand in 1996 and beyond. Their comments on the often-touchy issues of a potential scrap shortage and the relationship between ferrous scrap and so-called scrap substitutes were also more upbeat than the market lull that coincided with the event.
The Scrap Angle
Despite widespread worries about a steel scrap shortage, adequate scrap supplies will be available in the future, asserted I Michael Coslov, chairman and CEO of Tube City Inc. (King of Prussia, Pa.).
In the past, he conceded, there were some periods of scrap dislocations, citing 1974 as “a very difficult period” for processors as well as consumers, with the latter “buying out of greed, not need.” But a dislocation isn’t the same as a shortage, he stressed, pointing out that no mill ever had to close its doors for lack of scrap during these periods, and that past dislocations have proved to be short-lived.
The reason there hasn’t been and won’t be a ferrous scrap shortage is that scrap is a commodity that self-adjusts in the marketplace over time, Coslov said, noting, “economics drives the scrap market.” In general, this means that higher scrap prices draw out new scrap sources—as well as scrap “substitutes”—in the long run, he explained.
Addressing the issue of direct-reduced iron (DRI) and hot-briquetted iron (HBI)—and the fears of some that these items could displace demand for ferrous scrap—Coslov dismissed decade-old predictions that such virgin raw materials “would put scrap processors out of business.” These scrap “substitutes” are only a concern when they are worth less than scrap, he asserted, and, in general, DRI and its ilk cost more than scrap. Furthermore, he pointed out that such “substitutes” serve to limit scrap price increases, ensuring that scrap will remain the predominant feedstock of the steel industry. According to a recent industry report, in fact, the percentage of prompt plus purchased scrap used in both integrated and minimill production is expected to grow from 63 percent in 1993 to about 67 percent by 2000.
Touching on scrap exports, Coslov ventured that the United States will lose its status as the world’s leading steel scrap exporter, as other countries develop their own scrap markets and become larger players in the international export business.
Turning to the environmental issues that affect the scrap industry, Coslov repeated the credo that “scrap is not waste” and asserted that recyclers shouldn’t be regulated as waste handlers who haul material for disposal. Scrap is a raw material that is destined for reuse and should therefore have the same advantages as iron ore, its virgin counterpart, he stated.
Coslov also pointed to the need for greater cooperation between scrap recyclers and steelmakers in the years ahead, noting that positive relations are even more important today due to the tons of new steelmaking capacity coming on-stream in the near term. In the past, he noted, recyclers and steelmakers often had an adversarial relationship, but the two industries have become more economically dependent on each other, which makes good relations crucial to each other’s future success. “We need each other,” he concluded.
Reviewing the Scrap/DRI Relationship
Can DRI and scrap coexist amicably?
According to Frank N. Griscom, vice president of marketing and sales for Midrex Direct Reduction Corp. (Charlotte, N.C.)—the largest DRI technology company—the answer is a definite yes. In contrast to the previous cold war between DRI and ferrous scrap, when DRI was portrayed as a substitute for scrap, today it is held out as a scrap supplement or complement. “The metal-lics industry of the 1990s appears well into the coexistence phase and moving along the road toward cooperation,” he said.
Examining the trends in scrap and DRI consumption, Griscom projected that world requirements for scrap plus DRI/ HBI will reach 519 million mt by 2005, principally due to the expanding needs of electric-arc furnace steelmakers. Of that total, ferrous scrap will account for 469.8 million mt—or 90.5 percent—with DRI/HBI filling the remaining 49.2 million mt, he estimated.
As for scrap statistics, he pointed out that as supplies of home scrap have declined, mills have turned to purchased scrap to fill a greater percentage of their scrap feedstock. In 1980, for instance, purchased scrap represented 52 percent of total U.S. scrap use, he noted, but by 1994 that figure had climbed to 71 percent. And with home scrap generation expected to drop another 10 percent between 1996 and 2005, Griscom predicted “that pressure will mount on purchased scrap to meet anticipated increases in metallics demand.” The pressure will be particularly aimed at obsolete materials, he added, as prompt scrap supplies are anticipated to remain flat in coming years.
Despite scrap’s prevalence in the mini-mill market, Griscom said, some steel products can’t be produced out of 100-percent scrap, which means that the use of DRI as a scrap supplement will continue. In fact, he noted, two electric-arc furnace steelmakers in North America are already using 50 to 60 percent DRI to make high-quality wire and bar products. “Because DRI and HBI contain very low levels of the metallic residuals of copper, nickel, chrome, molybdenum, and tin, they can be used with scrap and other iron sources to achieve the best overall metallics value,” he said.
Scrap and DRI also interrelate when it comes to pricing, Griscom said, noting that scrap prices are “tempered by the availability of competitively priced DRI,” while DRI’s prices are generally tied to high-grade scrap tags. “Although we believe DRI eventually will develop an intrinsic value, for the immediate future its selling price will continue to be measured against premium grades of scrap,” he said.
Conjecturing about ferrous scrap prices, Griscom forecast that “upward pressure on scrap prices will continue,” predicting average values of $120 per mt for No. 1 heavy-melting scrap, $144 per mt for No.1 bundles, and $131 per mt for exported shredded for the period 1995-2005.
Assessing Steel Markets
The outlook for many steel product markets is cloudy for the next two years, but recovery appears to be on the way by 1998, said Linn B. Osterman, vice president of marketing and sales for Timken Co. (Canton, Ohio), a minimill that manufactures bearings and engineered steels.
According to Osterman, vehicle sales in 1996 will likely be on par with 1995, but the market is expected to move down slightly in 1997. In 1998, however, vehicle sales could rebound to set a record, even topping the 15-million mark set in 1994, he asserted.
The bearings industry likewise will show a decline in 1995, compared with the excellent year it recorded in 1994, and this downtrend will continue through 1996 and 1997 before recovering in 1998, Osterman projected.
Construction-machinery output, meanwhile, should fall off in 1996 and 1997, recuperating only slightly in 1998, while tractor production—which had been exhibiting a small recovery in 1995—is expected to decline over the next three years, he noted.
Looking at freight-car production, Osterman predicted a drop from the record 50,000-plus level seen in 1995 to approximately 38,000 in 1996 and around 35,000 in both 1997 and 1998. A sharper decline is envisaged for U.S. locomotive production, which reached about 850 units in 1995 but is expected to slide to about 450 units in 1996 and 400 units in 1997 and 1998, he said.
Steel Prospects ‘Reasonably Good’
While 1994 was a “fantastic” year for steelmakers, the market has declined in some respects in 1995, said John E. Jacobson, president of Jacobson & Associates (Rochester, N.Y.), a steel industry consulting firm.
Steel shipments through September totaled 73.3 million mt, compared with overall 1994 shipments of 95.1 million mt. Imports, which came to 17.9 million mt through August, trailed considerably the total 1994 imports of 30.1 million mt, Jacobson reported.
In contrast, exports through early November hit 4.1 million mt, already exceeding the 1994 total of 3.8 million mt.
Looking ahead, Jacobson asserted that the steel industry’s prospects in the next couple of years look “reasonably good,” noting that U.S. steelmakers are constructing a number of new mills and increasing their plant investments, which will boost the industry’s capacity by an estimated 13.7 million mt between 1996 and 2000. “There is substantial investment in new technology going on,” he said.
While the expanding steelmaking capacity will create more demand for—and put greater pressure on—ferrous scrap supplies, there will be enough scrap to meet the growing consumption, Jacobson said, adding that scrap quality will continue to be an important issue.
The Electric Furnace Factor
The scrap-fed electric-arc furnace steel sector is expanding around the world, bringing positive demand prospects for ferrous scrap, according to a report by the United Nations Economic Commission for Europe.
The number of steel plants using electric furnaces increased from 86 in 1970 to 228 in 1993, and their share of total world steel production has risen accordingly, from 25.4 percent in 1985 to 31.5 percent in 1993, noted the report, titled “Iron and Steel Scrap 1995.”
In 1994, electric-arc furnaces worldwide consumed between 200 million to 230 million mt of ferrous scrap, the report said, indicating that this sector “will in all likelihood continue to constitute the biggest demand for scrap worldwide in the future.”•
Experts at ISRI’s inaugural ferrous roundtable looked at the future prospects of the steel and ferrous scrap markets, as well as the potential for a scrap shortage and the relationship between scrap and scrap “substitutes.”