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Iron ore and coal used by integrated mills fell steadily
through 2014 and the early part of this year. This gave
a major cost advantage to mills in China and the Com-
monwealth of Independent States.
(The Common-
wealth of Independent States or CIS is a regional or-
ganization whose participating countries are former
Soviet Republics, formed during the breakup of the
Soviet Union).
These mills have been increasing their
exports of finished long products and billet as feed
stock, thus displacing international demand for scrap
to feed long-product electric arc furnaces abroad.
3
The U.S. is a net exporter of ferrous scrap. What that
means is that when international prices decline, there
is an excess of material available in the U.S. market.
Exporters choose to sell to the domestic yards instead,
flooding the market with supply makes prices fall un-
less demand is also increased.
“The key export markets for U.S. ferrous scrap are Tur-
key and Southeast Asia. Turkey depends on export
markets for its long products and these are in disarray.
Conflict and political upheaval have seen demand from
its key markets of Iraq and Yemen fall away while
sales have come under pressure from cheap Chinese
and CIS long products (thanks to their lower cost base
using iron ore and coal). They were selling to the U.S.
market, but importers stopped purchasing in early
2015 on expectations of a decline in U.S. long-product
prices. Finally, it has been cheaper for them to buy
cheap CIS or Chinese billet made from raw material
rather than U.S. melt scrap. As a result, they have
stopped purchasing scrap and prices plummeted.”
3
Either scrap prices had to fall or billet prices go up.
With 80% of merchant billet currently supplied by inte-
grated steel mills in China and the CIS and iron ore
prices falling, the obvious but unfortunate result was
falling scrap prices.
3,1
U.S. Integrated steel companies
haven’t been able to reap the benefits of the lower iron
ore prices because their mine profits also dropped and
many have metal recycling operations or partnerships
that have been negatively affected by lower scrap pric-
es. Metal recycling (and auto recycling) companies
hold higher-cost inventories.
1
Another key metric to watch in the steel market is
the end consumers of steel.
Steel consumption da-
ta is released yearly by the world steel association but
with a lag of one year, so it’s not really helpful in mak-
ing immediate projections. Steel is used in several end
-use industries.
1
The construction sector accounts for approximately
40% of total steel consumption in the US. This includes
both residential and non-residential construction. A
sharp increase in new home sales should boost steel
although non-residential construction accounts for al-
most two-thirds of total construction spending in the
U.S. Robust commerce is needed to stimulate com-
mercial building. Nucor and Gerdau are leading suppli-
ers to the non-residential construction industry.
Metal Market Recovery Next Quarter?
Recyclers News Press
Page 6