Just how deep is the U.S. ferrous scrap reservoir? Truth is,
no one knows with any certainty how deep.
A study by consultancy Robert R. Nathan Associates Inc. in
the late 1970s said, in brief, that there were millions and
millions of tons of iron and steel scrap out there. Not to
The study was done a year or so after the now-deceased
Father William T. Hogan, an economics professor and steel
industry analyst, had issued his own report predicting a severe
ferrous scrap shortage in the 1980s. Too bad Hogan didn't live
long enough to see the current ferrous scrap market-it might
have reassured him of his earlier prediction. But at the same
time, it might have undermined it.
In the first half of the past century, purchased ferrous
scrap was a commodity that steelmakers used at will. If the
price was cheap enough, they tossed it into their open-hearth
furnaces with their home scrap and iron. Electric and cupola
furnaces, which use mainly scrap, were the realm of specialty
steelmakers and foundries. When basic oxygen furnaces (BOFs)
became the operating standard for carbon steelmaking in the
1950s and 1960s, obsolete ferrous scrap got short shrift. The
BOF shops wanted the auto bundles and heavier demolition scrap
like plate and structural beams.
Our obsolete scrap reservoir grew and helped pave the way
for a new and innovative segment in the steel industry the
electric-arc furnace mini-mills. The scrap was here, it was
readily available from local suppliers and it was cheap enough
.?.?. and, after all, the nonferrous industries had been
recovering and reusing their metals for decades, if not
At first it was just reinforcing bar and other construction
products. Later, as the mini-mills moved into the sheet steel
markets in the 1980s, chemistries and specifications got
tougher and required more of the best-quality steel scrap. The
auto industry's factory bundles and similar prompt industrial
steel scrap, once sold mainly to integrated steel mills, became
a highly desirable commodity. Both BOF shops and the
flat-rolled mini-mills want them. The name itself-prompt
industrial scrap-indicates that there are few, if any,
reservoirs of that scrap. It comes to market almost as soon as
it is generated.
A glance at the $300-a-ton differential in the price paid
for No. 1 busheling and shredded and heavy melt indicates where
the pricing battle has been the most fierce. In the past there
was rarely more than a $10- to $20-a-ton premium in the price
paid for No. 1 bundles and No. 1 busheling over shredded scrap.
Consuming steel mills and foundries have compensated by
adopting scrap surcharges to offset higher costs. Those have
been in place for several years now, the consequence-not the
cause-of the spike in steel scrap prices.
Obsolete scrap like No. 1 heavy melt drawn from demolition
work and shredded autos still have some attraction to rebar
makers and foundries, but it also has been a staple of the
export market for decades.
The dollar might be weak now and drawing more scrap
offshore, but the dollar has had its ups and downs before. When
it drops, as it has in the past few years, new opportunities
are created for U.S. manufacturers to take advantage of the
comparative trade advantage that the cheap dollar affords.
Scrap metal is one of those manufactured products that is among
the first to reap the benefits of a weak dollar.
Some might argue that scrap isn't a true manufactured
product. They probably haven't seen a shredder or a baler in
action-nor have they seen the bills, permits and other
preparations required to set up such machinery. Also, the weak
dollar doesn't make scrap cheaper per se. It still
costs a scrapyard money to acquire the junk vehicles and old
refrigerators that are fed into the shredders, and junkyards
and other scrap peddlers that supply that feedstock expect to
be paid more if the scrap processor is getting a higher price
But the cheap dollar has made U.S. obsolete scrap more
attractive to overseas steelmakers and foundries when compared
with the price of scrap from other regions and alternative raw
materials. More than 2.4 million tons of ferrous scrap left
U.S. ports in May and nearly as much in June.
But how long will this buying binge last? By July, the
dollar was on something of a rebound, Turkey's steel producers
weren't selling as much rebar to construction companies in the
Middle East and Taiwanese scrap buyers told suppliers that
production would be cut back in order to reduce electric power
consumption during the summer.
As sudden as the price spike of the first half was, the
price decline at the start of the second half was far worse. In
July, prices at the coastal terminals started to drop like a
lead-weighted anchor-down by $100 a ton in a matter of weeks
and still sliding as this was being written.
Such steep declines would normally shut off the scrap flow
to the docks. That wasn't the case, however. If anything, the
opposite reaction occurred, at least for the first few weeks.
Dealers who had been selling to export yards didn't suddenly
cut them off. Instead they shipped more scrap, hoping that it
would cross the scales before the next price drop. Outside some
yards, trucks loaded with scrap were lined up bumper to bumper
and waited for an hour or more to unload.
The simple fact is that we are a scrap-rich nation. On its
surface, that might not seem like an attribute to brag about,
but it is-it says a lot about the wealth, the comfort and the
many products we enjoy. You don't see central air-conditioning
units outside tin shacks in Third World nations.
So how deep is our ferrous scrap reservoir? I don't know,
but I doubt that anyone has yet seen the bottom.