US steel scrap exporters operate on a complex landscape
The global market for scrap steel entered a volatile period in 2013 and United States scrap exporters have been paying the price.
Turkey, the world’s largest importer of scrap steel, and a major steel producer, entered the throes of an economic crisis. Currency devaluations suppressed the production of steel and likewise the demand for scrap, a primary raw material for new steel. As a result, U.S. scrapyards that sold large volumes to Turkey had to look elsewhere for customers. They may have found buyers, often in domestic markets, but, thanks to slack demand, at lower prices.
Economists believe the Turkish economy will rebound in 2014, although steel production numbers for January are not encouraging. Whether the rebound will come about and what its impact will be on demand for scrap steel remains to be seen.
Meanwhile, China, now the world’s largest steel producer and the fourth largest global importer of scrap steel, forged ahead with steel production in 2013. Demand for scrap steel in China will likely be healthy for years to come, but exporters face another problem there: China is beginning to generate significant volumes of its own scrap, which means that its demand for imported scrap may be on the wane.
Scrap steel is a globally traded commodity because it is a primary input in the production of new steel. The global recycling rate for steel stands at 92 percent and the volume in the global scrap trade increased eleven fold between 1990 and 2011, according to the Steel Recycling Institute. The consumption of steel is directly related to such primary economic sectors as construction and automobile manufacturing.
The Turkish Steel Producers’ Association recently reported that Turkey’s scrap consumption totaled 30.40 million tons in 2013, down 6.1 percent from 2012. Turkey’s scrap imports totaled 19.72 million tons in 2013, a decrease of 12 percent as compared to 2012, and the value of Turkey’s scrap imports last year fell by 20 percent to $7.51 billion. The country’s imports of scrap from the U.S., Turkey’s top supplier, fell 18 percent to 4.9 million tons in the first 11 months of last year. Turkey, which now purchases about 20 percent of the global trade in scrap steel, became the top importer of U.S. scrap in 2008 and emerged as the world’s premier importer of steel scrap in 2012.
Early numbers for 2014 are not encouraging. According to the World Steel Association, Turkey’s crude steel production for January 2014 was 2.8 million tons, down by 0.9 percent from January 2013.
While Turkey’s steel industry sank into turmoil, global steel production grew in 2013. The World Steel Association has reported the global crude steel industry set a production record in 2013 of 1.607 billion tons, an increase of 3.5 percent over the 1.553 billion tons produced the previous year. Growth in steel production in China exceeded the global trend: China topped the world producers of steel in 2013 at 779 million tons for a year-over-year increase of 7.5 percent.
According to a report from the Bureau of International Recycling, the first nine months of 2013 saw demand for steel scrap in China increase by 2.7 percent over 2012 to 64.3 million tons. Of note, that gain was smaller than the 7.5 percent increase in Chinese steel output, probably thanks to the availability of more domestically-supplied steel scrap.
Experts say that the weakness of Turkey’s currency in relation to the U.S. dollar has had a significant adverse impact on steel scrap buying activity. Turkey’s mills buy scrap off the international market in U.S. dollars but receive payments for the steel they produce in local currency. Some Turkish steel producers have opted to trim production, waiting for the lira to stabilize, or to look for cheaper scrap from smaller suppliers.
The metals recycling business of Schnitzer Steel Industries shipped 4.3 million ferrous tons and 520 million nonferrous pounds in 2013, noted company president Tamara Lundgren. “Total ferrous exports to major importing countries, such as Turkey, declined 20 percent as compared to the prior year,” she said. “Our export sales were similarly impacted, but our total sales volumes declined only 16 percent as we sold a greater proportion of our ferrous volumes into the domestic market.”
Demand for scrap from China, the world’s fourth-largest scrap importer, is expected to remain relatively strong for the next few years. But China’s demand may fall significantly after that as the country hits its first big scrap cycle, the term describing when a newly industrialized country starts generating its own scrap by recycling automobiles, appliances, and other goods.
“The big question for U.S. scrap is whether China will be a net importer or exporter,” said Joe Pickard, chief economist for the Institute of Scrap Recycling Industries, a trade group.
The Steel Manufacturers Association forecasts that China may emerge as a net exporter of scrap steel by 2020. China imported 1.46 million tons of U.S. ferrous scrap in the first eleven months of 2013, according to Pickard.
As far as Turkey is concerned, its Steel Producers Association said that country’s steel production is expected to grow by eight percent this year to 37.5 million tons. It sites a global economic recovery as one of the factors for that optimistic forecast.
Pickard acknowledged that the economic headlines signal accelerating economic growth, elevated jobs creation, and increased industrial production. “But,” he warned, “broadly improving economic conditions have not necessarily translated into more favorable scrap and commodity market conditions.”
While some forecasters expect only modest to moderate U.S. economic growth in 2014, a confluence of trends in the United States and globally could lead to more balanced growth this year, according to Pickard. “The business cycle appears to be entering a stage where a rebalancing of global growth, trade, manufacturing, as well as a more balanced approach towards monetary and fiscal policies, seems to be taking shape,” he said.
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