ISRI Commodities Roundtable 2016: Troubling times for ferrous
ISRI Commodities Roundtable 2016: Troubling times for ferrous
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Acknowledging the difficult market for ferrous scrap was the main theme for the ferrous session at the Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable 2016, held in Chicago, Sept. 19-21.
Opening ISRI’s ferrous session was Doug Kramer, president of Kramer Metals, a Los Angeles-based scrap metal company. In his remarks he discussed the scrap market outlook on the West Coast, primarily Southern California.
A key area of concern for Kramer has been the lack of supply on the West Coast, especially the shortage of industrial scrap, which has been caused by the disappearance of the manufacturing sector from the region.
In noting the steep decline in the manufacturing base in California, Kramer called out the high regulatory burdens put on the manufacturing sector in California. The regulatory environment in the state has made it cost prohibitive for many manufacturers to operate profitably in the state.
Because of this, “we are working in an environment which is experiencing in many ways an unprecedented exodus of industry, not seen since the 1980s when the aerospace industry left the state.”
The result of this decrease in manufacturing, he pointed out there is only one domestic steel consumer that is accessible for scrap dealers in California.
At the same time, the recycling market is being challenged by the “unprecedented restructuring of the scrap metal industry,” as well as the growth of what Kramer calls the unscrupulous, undisciplined scrap metal broker.
Going further, Kramer said, “We are in an area of the country that has no domestic consumption options. Rail is expensive. Trucking is expensive. It is cheaper to send it on a container overseas.”
While exports have become an essential outlet for ferrous scrap in Southern California, offshore markets also are experiencing problems. As Kramer discussed, exports are no panacea for the scrap metal dealers in California. He pointed out that the flow of material to export markets has been declining over the past five years. According to the Commerce Department, ferrous scrap exports dropped from about 6.8 million tons in 2011 to 3.6 million tons in 2015. “Putting it another way, we have seen ferrous scrap exports fall 800,000 tons per year since 2011,” Kramer said.
If slowing demand from offshore sources aren’t difficult enough, the costs to ship continue to climb, with congestion at ports and availability and cost of accessing equipment to load and ship material soaring.
Adding to the overall challenging environment for which shippers in Southern California find themselves, the much-publicized problems with the Korean shipping line Hanjin. With the company filing for bankruptcy this summer, there are thousands of containers and vessels that are still stranded at sea while payments are being worked out. While around 28 vessels have been able to discharge their cargo, Kramer estimates that somewhere between 34-53 vessels remain at sea with cargo, some of it recyclable commodities, that is valued at possibly $14 billion stranded.
Charles Bradford, a steel industry analyst with the firm Bradford Research, also expressed a fairly bearish outlook for both steel and ferrous metal in general. A large portion of his remarks focused on the Chinese steel industry and the impact it is having on both the U.S. and global steel markets.
One point that can’t be debated is that China is far and away the largest producer of steel in the world. And, because of its position, the country is one of the major factors in the steep oversupply of steel on the global market.
To reconcile the spread between supply and demand, Bradford said that the central government of China has tried many times to reduce capacity. However, the central government doesn’t have a good control over the steel industry, and many of the steel companies targeted to be shuttered are able to make moves to remain open, and in some cases increase production, he pointed out.
The oversupply has become a challenge for U.S. scrap dealers in many different ways, Bradford noted. For example, Turkey traditionally has been a large buyer of ferrous scrap from the United States. However, more recently there has been an appreciable decline in the flow of ferrous scrap from the U.S. to Turkey. This, despite Turkey seeing an overall increase in ferrous scrap imports.
There are a number of reasons for the United States playing a reduced role in supplying ferrous scrap for the Turkish steel industry, according to Bradford. One reason is the strength of the U.S. dollar. This macro-economic issue has been cited in other commodity sessions as a key reason for the overall decline in the export of material.
The higher U.S. dollar makes the scrap ferrous more expensive. Because of that, many Turkish steel mills are opting to purchase more ferrous scrap from sources outside North America because of the cheaper costs.
Kramer concurred with the assessment, noting “The biggest nemesis is the strong U.S. dollar. It is too expensive to export quality ferrous units into most countries that have better rates.”
“I would imagine it has to be difficult as well to purchase when the iron units are higher due to the high U.S. dollar,” Kramer added.
Another factor for the drop in ferrous scrap exports to Turkey, Bradford pointed out, is more China-centric: Billets from China are being used as a substitute for ferrous scrap in Turkey. While officially China does not export steel billets, Bradford contended that Chinese billet producers have made some modest adjustments to the metal and are shipping them as “square boxes.”
As for China and its steel industry, because the overwhelming majority of steel being produced in the country is not produced via electric arc furnaces (due to the uncertainty about electricity supplies), the demand for ferrous scrap (from U.S. and other sources) to feed Chinese steel mills is minimal. “I don’t think they will switch to EAFs (electric arc furnaces). Electricity is too expensive,” Bradford pointed out.
Also, as China continues to industrialize, the country is focusing on efforts to more aggressively boost the domestic collection of recyclables, including ferrous scrap. The result could be a lessening of the overall demand for recyclables to China as the country realizes it is able to obtain more of the needed metal from internal sources.
Rounding out the panel was Daniel Pickard, an attorney with the law firm Wiley Rein LLP. His remarks highlighted the plethora of trade and dumping issues that have been submitted over the past year affecting different types of steel products.
In his remarks, Pickard noted that Congress has been well aware of the global overcapacity issue for a while and the impact it has had on the industry.
There have been a “flurry of trade cases,” Pickard noted. And, in a response to the broad sweep of the problem, Pickard said, “What we see, rather than one or two countries, there were many major countries” that are being charged.
The cases have been cropping up throughout the year, including a decision made earlier in September involving hot-rolled flat-rolled carbon-quality steel from Russia. In its ruling, the U.S. International Trade Commission (USITC) determined that revoking the existing antidumping duty order would likely lead to continuation or recurrence of material injury within a reasonably foreseeable time and the existing antidumping duty order on imports of these products from Russia would remain in place.
Other investigations by the USITC made this year include the following:
- Imports of stainless steel sheet and strip from China
- Certain carbon and alloy steel cut-to-length plate from Austria, Belgium, Brazil, China, France, Germany, Italy, Japan, Korea, South Africa, Taiwan, and Turkey that are allegedly sold in the United States at less than fair value and subsidized by the governments of China and Korea
- Hot-rolled steel flat products from Australia, Brazil, Japan, Korea, the Netherlands, Turkey, and the United Kingdom that the U.S. Department of Commerce has determined are sold in the United States at less than fair value and subsidized by the governments of Brazil, Korea and Turkey.
Despite some recent victories over dumping of various steel products into the United States, Bradford still sees challenges for the market. “All the euphoria that rallied after trade cases have been lost. It is a difficult situation.”
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Source: Recycling Today
ISRI Commodities Roundtable 2016: Troubling times for ferrous
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