Hanging on: veteran scrap recyclers have seen ups and downs before, so they're holding out through the current slump - Statistical Data Included

Recycling Today, Nov, 2001 by Brian Taylor

The numbers associated with the current steel industry and scrap market slump are grim:

* More than two dozen steelmakers have filed for bankruptcy in the past few years

* Average prices for ferrous scrap have not risen above $94 dollars this year

* Steelmakers in North America continue to melt at low capacity (70.4 percent in one recent week) in the face of slack demand and a glut of competing imports.

The slump has been not just discouraging for some recyclers, but downright devastating, as some yards have shut their gates permanently.

Current economic indicators are not signaling an immediate rebound for the market, which could mean that processors who can't squeeze a margin out of $80 per ton ferrous scrap may be joining the roster of shuttered operations.

On the other hand, those who are managing to maintain both a suitable volume flow and squeak out a profit will be poised to ride the roller coaster back up when stronger markets return.

MORE WOES FOR BIG STEEL

If the strength of the ferrous scrap market ultimately depends on the health of the steel industry, then market weakness remains part of the outlook.

Nearly all observers of the global steel industry point to overcapacity as a reality in good economic times and a tremendous burden during economic slowdowns.

Steelmakers in the U.S. believe they are particularly harmed by overcapacity because of the federal government's open trading policies. There are still many U.S. manufacturers who are reluctant to offer tariffs or other trade protection to domestic steelmakers, even in the face of a rash of mill shutdowns and bankruptcies in the past few years.

But a stronger, louder alliance of steelmakers (both integrated steelmakers and traditionally pro-trade mini-mill operators), unions and elected officials from steelmaking states and districts seem to have finally caught the attention of lawmakers in Washington.

Two of America's largest steelmakers and operators of integrated steelmaking complexes--LTV Corp., Cleveland, and Bethlehem Steel Corp., Bethlehem, Pa.--are in bankruptcy and continue to bleed cash.

Several smaller steel companies have shuttered their operations and/or have shifted from Chapter 11 reorganizations to Chapter 7 liquidations.

Without question, domestic consumers of ferrous scrap are struggling. "Domestic producers are hemorrhaging cash at a rate that cannot be sustained," Charles Gedeon, an executive vice president with U.S. Steel, Pittsburgh, told attendees at October's ISRI Ferrous Roundtable in October.

Gedeon contends that North American steelmakers have done their share to help reduce global steelmaking overcapacity, although he says excess capacity cuts will have to come "a little bit from everywhere, and that includes here."

He also notes, though, that since 1981 60 million tons of steelmaking capacity has been eliminated in the U.S., while many overseas countries continue to support what Gedeon calls "50 years of foreign government intervention in the steel industry."

Responses to pleas for help from steelmakers have been slow in coming from the federal government, but there is hope in the current proceedings taking place under Section 201 of the U.S. Trade Act of 1974.

Under those proceedings, a dozen of the largest volume types of steel will be protected by tariffs or other means available to the U.S. government. The Bush Administration is scheduled to announce the steps it will take by mid-February of 2002.

To what extent these steps will help domestic steelmakers--after four years of competing with a flood of low-cost imports--is the next question.

"It can't hurt," Bill Heenan of the Steel Recycling Institute, Pittsburgh, says of the Section 201 ruling. "It sends a message of stability," Heenan notes.

This could be important to an industry that, according to U.S. Steel's Gedeon, "for the first time in two decades does not have the financial means to make investments" in its operations.

MELTING AWAY

While economic conditions and trade policy combine to affect where steel is made, ferrous scrap continues to be melted both here and abroad.

The market is far from boisterous, however, as low prices for scrap begets lighter peddler traffic and thinner margins. The wider economic slowdown, meanwhile, has trimmed the amount of industrial scrap that flows into the yards of processors.

It has been more than twelve months since the number one heavy melt grade has traded for more than $100 per ton, according to the American Metal Market composite.

The situation has made things difficult for small operators and at feeder yards that rely on the peddler trade. Some scrap recyclers worry about the long-term prospect that peddlers they have relied on for years are leaving the trade for good during this prolonged pricing slump.

While the supply of scrap might be low right now, demand has also stalled to the point where prices continue to hover in the $80 per ton range.

Electric arc furnace (EAF) mini-mills remain a growing segment of the overall steel industry, but even that circumstance cannot counteract the current glut of melting units (ferrous scrap as well as alternative iron materials used by mills). That is the finding of Sara Hornsby Anderson and her colleagues at Midrex Technologies, Charlotte, N.C., a maker of alternative iron production systems.