IAR Recyclers Newspress July / August 2015

8 / 24

Recyclers News Press Page 8
Metal Market Recovery Next Quarter?
Steel consumption in the U.S. increased by about 5%
over this period. Even though U.S. steel consumption
grew at a higher rate than the rest of the world last
year, more imports meant that the benefit went to for-
eign companies. Domestic steel companies lost out
on business due to steel imports. Nucor reduced
its price for rebar this year as it struggles with high
rebar imports from Turkey.
Hopefully three factors, a crackdown in China on tax
loophole abuse, anti-dumping litigation filed by steel
companies and nullification of the Russian treaty, will
stem the growth in steel imports in 2015.
First, China has a preferential tax policy for alloy steel
products. A lot of steel producers in China started
adding very low quantities of boron to standard steel
products to help classify these steel products as alloy
steel. Boron alloy steel accounted for around one-
third of steel exports from China last year. Chinese
authorities have now clamped down on this tax loop-
hole. Steel exports from China increased in January,
but analysts expect the impact of the new tax
rules show up in the coming months. China also plans
to close down some excess steel capacity this year.
Massive overcapacity in China has been one of the
major issues for the global steel industry.
Second, steel companies filed a record number of
trade cases last year and managed to get anti-
dumping duty imposed in some cases. As steel de-
mand is expected to grow at a slower pace this year,
steel companies are expected to be more vigilant in
filing trade cases. [DEFINITION of 'Anti-Dumping Du-
ty' - A protectionist tariff that a domestic government
imposes on foreign imports that it believes are priced
below fair market value. In the United States, anti-
dumping duties are imposed by the Department of
Commerce and often exceed 100%.]
Finally, the U.S. scrapped a treaty with Russia for im-
porting hot rolled steel sheets. The full impact of this
action should be visible this year. Steel companies
will benefit from this step. The impact of these three
action should push the market to “right” itself once the
inventories on hand are utilized.
Steel inventories have surged to record highs as a
result of cheap steel imports last year. Metals service
centers acquire primary metals like carbon steel and
aluminum from metal producers and process them to
customer specifications. Reliance Steel and Alumi-
num is the largest service center in North America.
As per estimates, more than a quarter of total steel
consumption in the U.S. is supplied by service cen-
ters.
Service center inventories have been more than
9,000 tonnes for five months in a row. At current man-
ufacturing rates, this represents 3.2 months of service
center supply, the highest service center inventory
since February 2009. The low steel scrap prices will
prevail while service centers liquidate this inventory
without immediately restocking from “downstream”
markets like metal and auto recycler.
So where does that leave off expectations? Ultimate-
ly, there is nowhere to go but up for steel scrap which
is good news for the metal and auto recycling indus-
try. Once the steel service centers’ excess inventory
is depleted they will have to buy more material to
manufacture products. Those products will be driven
by consumer demand for automobiles and housing as
long as the unemployment rate stays low, wages
grow and consumer spending trends upward with
consumer confidence. In the end, the loss of steel de-
mand in the energy sector could be compensated by
the extra disposable income consumers have due to
lower gas prices. Artificial market intervention from
the government through tariff or court litigation may
also help the underpriced import market from continu-
ing to devastate the U.S. metal market. At best, the
metal market recovery could start in the next quarter.
1 Key Steel Industry Indicators That You Should Be Tracking,
O’Hara, Mark, Feb. 2015,
2
3