Domestic steelmakers need to realize that the scrap export
market is here to stay and that offshore steel mills in distant
lands like Turkey, China and Vietnam are everyday players in
the international ferrous scrap game.
The words aren't mine. They belong to a veteran scrap trader
on a mission to wake-up the American scrap industry to an
irrefutable new reality.
Of course, it wasn't always that way.
The weakness of the U.S. dollar vs. other major currencies
is a major driver, but other forces also have been at work,
producing what economists like to call structural (or
long-term) changes to the market.
In the past, No. 1 heavy melt and shredded scrap were the
main feedstock for rebar mills and other electric furnace
operators. Integrated mills preferred the denser,
higher-quality material like factory bundles as long as the
price was attractive or if they needed to boost production
What the mills didn't want was then piled up in dealers'
yards or was sold to export yards, often at a discount to U.S.
Exporters used to think that if they shipped 10 million
tonnes it was a good year. A decade ago, they ran into new
competition and barely squeaked out 6 million tonnes to
overseas buyers. The new competition was a host of freewheeling
eastern European scrap traders. Following the breakdown of the
Soviet Union in the 1990s, the Black Sea ports became scrap
export hubs. Scrap was easily accessible inside the region and
could be barged down rivers to ports like Odessa and shipped
across the Black Sea to Turkey.
But almost as quickly as the eastern European scrap bonanza
began, it ended. Russian and Ukrainian steel mills moaned
loudly about the loss of raw materials; export taxes and quotas
were imposed by obliging lawmakers; and steelmakers in Turkey
and southern Asia no longer had a cheap and nearby source of
scrap to make their steel products.
At the same time, China was expanding its steelmaking
capacity. While much of the additional capacity was integrated
steelmaking that used less scrap, there were still enough older
mills and enough demand for steel products in Asia to make the
older mills more active buyers in the world ferrous market.
That has continued to this day close to 1.2 million tons of
ferrous scrap left U.S. ports for China in March, a fair
portion of it from East Coast and Gulf Coast ports as well as
those on the West Coast.
Scrap is steadily moving to the docks not just for bulk
cargoes but also in containers. For the shipping companies
carrying finished goods from China to U.S. ports, it provides
an opportunity to get those containers back to the Far East
where they were needed and not carry them across the ocean
empty. Not too many years ago, the notion of shipping something
as big and clunky as iron and steel scrap in a container was
unthinkable. It would ruin the inside of a container. They took
their lumps and scarred floors, but more ocean carriers have
come around to the idea of carrying ferrous scrap back across
Using containers for ferrous scrap also opened up new
offshore markets, especially for those yards that hadn't been
in the export business. Now they can load containers, truck
them to the docks and hoist them onto a container ship bound
for small emerging Asian economies like Vietnam and
In the first three months of this year, U.S. exports of
ferrous scrap totaled almost 5 million tons, up nearly 13
percent from the same period last year, according to U.S.
Commerce Department statistics. While it's still too early to
say what this year's pace will be, it's worth noting that U.S.
scrapyards exported close to 21.5 million tons of ferrous scrap
last year-more than double what they used to consider a good
If the current pace continues, exporters will ship more than
they did last year-when steelmakers in the United States and
abroad were running almost full out. If anything, one would
expect shipments to be down sharply because of the worldwide
Scrap metal, whether ferrous or nonferrous, is one of those
products that benefits from a weak dollar. Why not step up and
pay those prices, overseas mills seem to be saying; it's cheap
enough, and most ferrous scrap is priced in dollars.
Obsolete U.S. scrap has become more attractive to overseas
steelmakers and foundries compared with the prices sought for
scrap in other regions, as well as for alternative raw
materials like pig iron and hot-briquetted iron (HBI). Besides,
as one alternative materials trader learned some years ago,
some melters are more comfortable using scrap and see little or
no reason to pay any premiums for pig iron or HBI.
Traders and brokers typically talk about the export market
in terms of buying flurries by steelmakers in one or more
foreign countries. The Turkish mills were the market leaders
for much of the past year, but others have stepped in to fill
whatever void their reduced buying has created.
The simple fact that the United States is a scrap-rich
nation has made us the envy of some offshore steelmakers.
Someday, perhaps, when their economies have generated enough
vehicles and appliances and they are discarding as much as we
do, that demand might ease. That has been the case for Japan;
once a major U.S. ferrous scrap importer, it is now a ferrous
Not too many years in the future South Korea and China might
become members of the scrap exporters club. Until then, it's a
pretty safe bet that they will be looking to the West to fill
their furnaces, and as long as the U.S. steel industry isn't
buying much scrap, as is the case these days, scrap dealers
will be looking abroad for new customers.