Lowly elements

Recycling Today, March, 2005

Mill buyers continue their emphasis on combining lower scrap grades with scrap alternatives in their melts, seeking to avoid higher-priced ferrous grades.

The strategy appears to have produced its desired effect, as scrap dealers and mill buyers alike report that price negotiations in February and for March have mills offering much lower bids for prime grades.

In some cases, this could reflect a genuine inventory build-up at certain steel mills, though scrap dealers are skeptical as to why mills would build up inventory during earlier months when prices were at historic highs.

After prices for these grades drifted downward in December 2004 and this January, one Southeastern U.S. scrap dealer says pricing "dropped off the cliff" starting around Feb. 1.

Although dealers can quickly adjust their scale price to keep those margins safe, in the case of agreements with some generators, they may need to wait for a published price drop before they can confirm a new buying price.

Whether because of melt shop changes, inventory management or a combination of these two strategies, what remains to be seen is whether the concerted attempts to reduce domestic demand for prime ferrous grades can provide a long-term solution for steel mills to contain their feedstock costs.

Melting rates domestically and internationally remain healthy, with the Chinese economy predicted to remain on a solid growth path throughout 2005.

Chinese integrated steel companies are reportedly negotiating to keep their iron ore costs down, while iron ore producers say global supply and demand factors justify high prices throughout 2005.

The high starting negotiating point for iron ore may not bode well for mills on the scrap side either. If global economies, led by China, enjoy economic growth, this will likely mean good news for steel companies on the sales side, but with the mitigating factor of high costs on the feedstock side.

One mill buyer is optimistic that the current price drift signals the beginning of an era in which domestic buyers and sellers "can settle into a range" that will allow steelmakers and scrap dealers alike to operate in a less volatile climate.

But a Midwestern scrap company executive notes that lower prices are already fetching more export broker interest, with two sizable ferrous scrap export shipments already scheduled out of the port of New Orleans "in the next couple of months."

(Additional news about ferrous scrap, including breaking news and consuming industry reports, is available online at www.RecyclingToday.com.)

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