Growth of market in Asia, shipment containerization are major recent developments

A discussion of the scrap steel market may seem like an unglamorous pursuit, yet it is not an unimportant one. The market for scrap steel is significant and growing in United States and world trade.

Steel is the world’s most recycled material. More steel is recycled each year than all other materials combined, according to the American Iron and Steel Institute. That’s because steel’s metallurgical properties allow it to be recycled continually from one product to another with no degradation in performance. The recycling rate for steel stands at over 80 percent. Two out of every three tons of new steel is produced from old steel.
The exporting of scrap steel and iron also appears to be a growing opportunity. According to the Institute of Scrap Recycling Industries (ISRI), approximately 74,000,000 tons of recycled iron and steel were processed in the U.S. in 2010, up from 70,000,000 tons in 2009. Nearly 19 million tons of ferrous scrap were exported from the U.S. in 2008, and over 20 million tons in 2009. Commercial Metals Corporation, a steel and metals producer and recycling company based in Irving, Texas, exported 11 percent of its iron and steel scrap during 2009. The U.S. is by far the world’s largest exporter of scrap steel.
Scrap steel, then, is an important raw material for steel production. The scrap steel market is therefore intimately related to steel production levels.
The world economy can be seen as bifurcated into two groups when it comes to the robustness of its recovery from the recent recession, according to David Hodory, vice president of The David J. Joseph Company, a Cincinnati-based scrap steel dealer and a subsidiary of Nucor, a manufacturer of steel products based in Charlotte, N.C.
“We usually think of the world economy in terms of the developing and industrialized nations,” he said. “It is no different in the steel and scrap sectors.”
In the industrialized world, the steel and scrap markets are experiencing a moderate recovery, Hodory said. “Domestic U.S. operating rates are coming off a steep floor,” he added. “If you compare the U.S. to the rest of the world, it is taking longer to recover and not to same level as other economies globally.”
China has been the major if not the sole source of growth in steel production in recent years. “Over the last ten years, production in China has tripled while the U.S. and European Union have decreased production,” said Hodory.
This is the case, despite the fact that domestic steel shipments rose almost 40 percent in 2010, as the market bounced back from the recession. Growth projections for 2011 are in the five percent to six percent range. This comes as no surprised to Hodory, who said that growth rates level off in developed economies. The steel intensity curve, an index showing the changing demand for steel through different stages of an economy’s maturity, indicates that steel production in China still has much room to grow, said Hodory.
From 2004 to mid-2008 there was a dramatic run up in steel and raw material prices, during which time hot rolled coil steel went through some dramatic swings. Those prices then plummeted during the latter half of 2008 and into 2009. “We think of scrap pricing as a function of the ability of mills to sell through to their end markets and the demand of end markets on steel mills as a leading indicator of what we see as demand driven consumption of scrap,” said Hodory.
Looking forward, Hodory sees a continued slack in commercial and residential construction, negatively impacting the demand for steel and scrap. “We see residential construction as having bottomed out,” he said, “but that it will take two or more years before commercial construction begins to come back.”
Sources for steel scrap are classified into three main categories: home scrap, prompt scrap and obsolete scrap. Home scrap is the scrap that is produced from within the mill itself and