Nov 16 2004
As global steel output continues to grow at record levels, it is not surprising that demand for scrap remains very strong and prices therefore high. In our latest World Steel Outlook, MEPS forecasts world production of crude steel this year reaching 1,035 million tonnes, an increase of 7.5 percent from 2003. This implies a rise in demand for purchased scrap of about 25 million tonnes.
As a result, scrap prices have been breaking new records. After a dip in mid-year when China was out of the market for a while, scrap values rebounded strongly. The average price for shredded, as reported to Eurofer by its member steelmakers in the five largest EU producing countries, has skyrocketed. On an index in which 2001 prices equal 100, the shredded figure soared from 140 in November last year to over 210 in March 2004 before falling back to 157 in June. The price then regained upward momentum and accelerated to 247 by October. This represents a jump of almost 60 percent in four months. Other grades have shown still more dramatic leaps.
When the market was in the doldrums a few years ago, No 1 heavy melting scrap was being exported from Rotterdam for less than $US70 per tonne. Today the same business is being done at more than $US280 per tonne.
Scrap prices are notoriously volatile, but the gyrations seen in the market in the last couple of years have been completely unprecedented. They have created severe economic problems for steel producers who rely on scrap as their principal raw material. Mini-mills have lost much of their traditional cost advantage over the integrated producers.
Because of strong demand for steel, mills have not had any real difficulty in passing higher scrap costs on to their customers, either through surcharges or by adjusting their base prices. It remains to be seen whether this picture may change as global demand continues to rise steadily, and it becomes increasingly difficult to source scrap and alternative furnace feed materials.
Increased consumption of steel results in an expanded supply of new production scrap: steel-using manufacturers generate more scrap as they step up their output. The availability of other grades is more uncertain. Steelworks’ own scrap arisings are continuing to diminish as yields of finished product from liquid steel improve.
The outlook for obsolete scrap is quite problematic. High prices have already stimulated an increase in the recovery rate in those industrial countries where the reserves exist. However, the rise in demand could accelerate to the point at which we start running out of old buildings to demolish.
There are a few possible sources of additional scrap supply. Russia and other countries of the former Soviet Union could generate more if the economic conditions were right: this would mean abolishing the current controls on scrap exports. Nevertheless, with world steel production set to continue growing, it seems scrap supply will remain under pressure.
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