It’s a pattern that can be traced at least since February of 2014. One month prices of scrap steel plummet, followed by a couple of months of stability, then they fall again. In February of this year, the price of scrap steel fell by 30 percent, followed steady prices in March and April. The market also experienced slides in August and October of 2014. The problem is that the falling prices have not been matched by any sort of rebound, nor are price increases expected anymore at this point. This pricing patttern is beginning to have an impact on how some of the major players in the industry do business. Schnitzer Steel, for example, one of the largest manufacturers and exporters of recycled ferrous metal products in North America, recently announced a reorganization of two of its divisions and the idling of some of its recycling capacity, all in an effort to squeeze some profitability out of, what the company’s CEO called, a “low price and low volume environment.” The two biggest causes of the massive price drop in February 2015, according to a report from the Detroit-based Sikora Metals, were “decreasing worldwide demand for scrap steel and the increase in the value of the dollar.” Weak global demand for scrap can be traced to economic slowdowns in Russia and China as well as parallel steeper price decreases for iron ore and coal. Iron ore and coal are the key inputs for making new steel, and as their prices drop the fabrication of new steel by manufacturers, instead of melting scrap, becomes more attractive. “There has always been a relationship and there will probably always be a relationship between scrap and iron ore,” said Schnitzer CEO Tamara Lundgren. “We have found that scrap prices do, over time, adjust and find their natural levels.” The bottom line, at least according to Sikora Metals, is that there is no foreseeable upside to the market. “Most likely ferrous prices will be down for all of 2015,” the company’s report said. “There is still no certain answer as to if/when prices will start to climb again.” At Schnitzer, market conditions for scrap steel in the most recently ended quarter were the toughest the company has experienced since 2008, according to Lundgren. “In the month of February, we saw ferrous sales prices drop as much as a $100 per ton, roughly 30 percent,” she said. “This steep price drop is a continuation of the price decline that began in the previous quarter when ferrous sales prices dropped approximately 20 percent. These significantly lower prices have been driven by excess global steel production, historically lower iron ore prices, the strengthening dollar and weaker demand.” Schnitzer business was also negatively impacted by the harsh weather last winter and the labor slowdown at the West Coast ports. “These affected the timing of both ferrous and non-ferrous shipments,” said Lundgren. “The scrap market conditions we experienced in the second quarter and the trends we’ve seen over the last six months have been severe.” The 30% drop in the selling prices for recycled metals resulted in a 27 percent drop in Schnitzer’s ferrous metals business. The net result for the company was that Schnitzer experienced a loss in its second fiscal quarter of $7.24 per share, as compared to a profit of seven cents per share in the same period last year. Revenue was $439 million on the quarter, 21% below 2014. In reaction to these developments, the company announced it would pursue initiatives which would reduce costs and improve productivity. The two mainstays of the program are the closing two of its shredders, one on Canada and one in Rhode Island, the closing of seven of its 55 retail auto parts stores, and the consolidation of its auto parts and its metals recycling businesses. Combining the two businesses will eliminate duplications in its IT, human resources, finance, and other activities. Lundgren expects the measures will improve Schnitzer’s fiscal performance by $60 million in the coming year. “We are just very focused on running our business in this low price and low volume environment, profitability and successfully,” said Lundgren, “and so that’s what these actions are about in terms of getting us back there. When you look at it over the last six quarters and when you take out the volatility of the pricing that we’ve been experiencing and particularly that we’ve been experiencing quite severely in the last six months, the operating income per ton of the metals recycling business has been steadily increasing while volumes have been decreasing. The actions that we are taking are ones that we believe will enable us to increase over time our operating income per ton notwithstanding further changes in prices or volumes.” The strong U.S. dollar has also shaped changes in import/export flows. “In 2014, total U.S. exports were at their lowest level since 2006,” said Lundgren. “It was also the highest level of scrap imports since 2006. They were up around 15 percent. That was the biggest shift that we’ve seen in quite a while.” But the U.S. remains the biggest exporter of scrap. “Buyers need to come to the U.S. for quality and quantity,” said Lundgren. “If this currency relationship is maintained for a long time, the way we maintain our competitiveness is by adjusting prices, by maintaining and continuing to improve the quality of the scrap that we sell, and through prompt delivery.” Schnitzer’s top export destinations for scrap steel in the current quarter are Turkey, Egypt and Peru. “We also sold throughout Asia to Korea, Malaysia, Taiwan, and Thailand,” said Lundgren. “The major countries continue to import and, as you look at those countries where steel manufacturing is increasing, such as in the Middle East and in Central and South America, you will see our sales be directed to those regions as well.”