$370 a long ton for shredded? You
haven't seen anything yet
What sort of ferrous scrap will be left to
melt in, say, 2017? It is a fair question to ask, given the
steel production predictions discussed at the Steel Success
Strategies XXII conference in New York co-sponsored by
AMM and World Steel Dynamics Inc. (WSD).
Unveiling their outlook for the industry, WSD managing partners
Peter F. Marcus and Karlis M. Kirsis said that the "Age of
Metallics," which they had discussed in years past, "seems
likely to remain in full force." In other words, the expansion
of steelmaking in the next decade should be so strong that
scrap supplies, particularly obsolete scrap supplies, won't
keep pace with new demand.
This is not to say there will be a ferrous
scrap shortage. Those words always conjure up notions that
scrap from old cars and demolished buildings will disappear
completely and be replaced by scrap alternatives like pig iron
and direct-reduced iron. There will always be ferrous scrap. It
is an end product of developed economies.
The problem instead is that there might not
be enough to meet the growing demand if the WSD scenarios of
3.9-percent or even a more modest 3.2-percent annual growth in
steel production is attained. The obsolete steel scrap
reservoir will expand only at a 1.9-percent annual rate for the
next decade, according to WSD. Steel consumption growth in the
past few years has been slower than it was in prior decades,
and thus iron and steel scrap from old machinery and buildings
has been lower. At the same time, though, the expansion of
steel production here and overseas has grown at a faster rate,
helping to drain that obsolete scrap reservoir, and it will
continue to do so in the next decade.
No one really knows exactly how much scrap is
in that reservoir. Some years ago, a consultant hired by the
former Washington-based Institute of Scrap Iron and Steel put
together a report saying that there would be more than enough
scrap to meet demand in the foreseeable future. That followed a
dire prediction of a ferrous scrap shortage in the 1980s by the
late Rev. William H. Hogan, a Fordham University professor and
steel industry economist.
The words "scrap shortage" are still viewed
with disdain both by scrap processors and scrap buyers at steel
mills. "There will always be ferrous scrap" many in both
industries are fond of saying, and that includes Marcus. But
the caveat they always add is "For a price." That caveat has
proven correct in recent months, with shredded soaring to a
record $370 a long ton in March to surpass the prices paid for
rival industrial steel scrap like No. 1 dealer bundles and No.
1 busheling. And No. 1 heavy melt was not too far behind,
selling for as much as $310 a ton.
There is a fixed volume of industrial scrap.
It is a byproduct of the amount of steel consumed by
manufacturers, whether auto or appliance or aerospace. No
manufacturer makes scrap just to sell as scrap. So when demand
for ferrous scrap rises, scrap suppliers and consumers turn to
the obsolete reservoir and offer higher prices to draw more
material into the market. This past year, such increases were
driven by overseas buying, particularly by steel long products
makers in Turkey and elsewhere in the eastern Mediterranean.
U.S. ferrous scrap exports soared to a record 5 million tons in
the first four months of this year. If such a pace is sustained
for the rest of 2007, exports could top 15 million tons-3
million tons higher than the record levels seen in each of the
past two years and 5 million tons more than what most scrap
exporters and traders used to consider a good year 10 million
Now summer, the flow of obsolete scrap from
demolition jobs should be at its peak, yet scrap dealers and
processors talk about the absence of big demolition jobs. Many
say they are seeing jobs from demo suppliers that are averaging
about 5,000 tons, well below the tonnage that was coming into
their yards a year or two ago.
So, if steel production matches the forecasts
and demand for obsolete scrap continues to rise, don't worry
about a scrap shortage. But don't be too surprised in, say,
five or 10 there are distinctive collection cans in the office
for old paper clips and hairdressers signing contracts with a
local scrap dealer for discarded bobby pins.