BIR Report: Nonferrous crowd more upbeat than ferrous folks
Not much in the way of positive ferrous news to report, given the consensus views shared at last week’s Bureau of International Recycling (BIR) meeting in Amsterdam. Most expressed the belief that the current global steel market is over baked, and that the primary price drivers for both finished steel, and ferrous scrap, was nothing more/less than a destocking/stocking cycle that has run its course and exacerbated by an increase in Chinese exports, temporary government stimulus, and “normal” seasonal fourth quarter steel weakness.
Speaker Marcus Barg of TSR Recycling in Germany, flatly stated that “a fundamental recovery was not in sight” and remarked that it’ll take a decade before the European Union’s steel returns to 2008 production levels.
Thomas Ludwig, Klockner & Co. offered the steel distributors point of view and also concluded that the destocking cycle within the EU was done, and while the latest PMI (purchasing managers’ index) data pointed to improve expectations, apparent steel consumption now lags real steel consumption. Steel prices, he said, are returning to mid-
2005 levels with 2009 European steel consumption expected to be down 23% year-on-year.
As for China being a major export threat to the West, Ludwig believes that it’s not in China’s interest to import expensive raw materials in order to export HR coil to the EU or to the U.S. This, he stated, is not China’s strategy, and further remarked that the EU and the US were “overreacting” to Chinese exports.
Blake Kelly of Sims Metal Management, confirmed the above downbeat global observation for the steel industry noting that for the U.S., ferrous scrap prices have peaked with November prospects hinting at a decline of $30/gross ton, with shredded scrap, in particular, in oversupply. Ferrous scrap, he said, will continue to ease with end-of-year working capital yet another consideration for steel producers.
Finished steel sales, he continued, were “difficult” now that restocking was has run its course. Hot-rolled coil prices, for example, are also falling and he expects to see EAF (electric-arc furnace) producers scaling pack production while the integrated producers continue to crank out finished product.
U.S. Steel, however, announced that it will shut blast furnaces at their Gary and Granite City works this quarter. Meanwhile, steel mill utilization decreased for the first time since the week of June 20th. Mill utilization for the week ending October 31 decreased to 62.7% versus 63.2% in the week ending October 24th.
As for an outlook on ferrous scrap prices, Kelly said he was looking for the steel market to return to a more balanced state but this, he concluded, could take until January 2010. The overriding issue, he believed, is excess steel capacity.
Destocking and service center replenishment was also carefully scrutinized by Barry Hunter of Hunter Alloys, during BIR’s Stainless Steel and Special Alloys meeting last week. Hunter noted that during the third quarter, domestic mills became hungry for 18/8 and 316 scrap, only to find that the material sought was “now long gone to China.”
Consequently, processors aggressive competed for the limited supply driving scrap values above the intrinsic value of the material itself. Nickel scrap prices, Hunter remarked, increased by almost 45% over the normally slow summer months while London Metal Exchange (LME) inreased “only” 22% in spite of the on-going strike at Vale Inco in Canada.
At any rate, domestic mills, he continued, had little choice but to support September’s fast-rising scrap market in order to fill depleted service center inventories. What’s still missing, Hunter observed, is the end-user.
Hunter concluded his remarks by reiterating that scrap remains tight, and as consumers return to the marketplace, ‘‘inflated” scrap prices may be a return feature but he did not anticipate this happening until “sometime in 2010.” Middle East scrap tightness was also noted by Ahmad Sharif of Sharif Metals and Michael Sutter of Chronomet, who commented of scrap availability in Germany.
Moving on, this week’s Scrap Price Bulletin has its No.1 HMS (heavy melt scrap) composite price at $228.50/gross ton delivered, down $20 from last month; shredded was placed at $252.83/ton, with Chicago bushelings at $302.50/ton.
Other sources, however, are reporting softer scrap prices with No.1 pegged closer to $180/ton delivered and shredded around the $230 mark, delivered to Midwest mills. Our friends at Canaccord Adams, for example, note that shredded scrap is “dropping fast” and they would not be surprised to see November pricing “down $30+/ton” bringing this grade of scrap to the $234/ton level delivered, especially with little
offshore interest being expressed as well.
Others agree. The latest from Michelle Applebaum Research, for example, notes that after declining $30/ton apiece in October, “we expect to see scrap prices for both shredded and No.1 bushelings fall a similar amount in November.” The analyst cites weak overseas scrap demand as well as softer domestic demand. At the same time, however, flat rolled products are not expected to experience a “significant drop off in pricing” given the near record low inventories.
Morgan Stanley Research and others seems to agree: the firm sees domestic hot-rolled (HR) sheet in coil starting 2010 “near $510/ton and average $540/ton for the full year.” London-based GFMS placed next year’s domestic HR average at $585/ton. As for current domestic finished steel prices, Purchasing placed its October HR coil average at $535/net ton, unchanged from September, and well below the $600/ton price sought by the steel producers. A near term HR price forecast offered by Purchasing calls for modest $5/ton increase for December. (Editor’s note: That’s after what looks like slippage to $525 in November.)
As this week ended, Steel Market Update placed the current HR market in a $ $500/ton - $540/ton range, with an average of $520, fob mill, East of the Rockies.
Meanwhile, the economic recovery that appears to be underway remains very supportive for the nonferrous base metal markets, although we’re also experiencing heightened volatility as the markets digest any and all economic news.
Macquarie Research believes, for instance, that a lot depends on clarification of Chinese demand and subsequent buying as we go forward. They credit China with “saving the
commodities world” this year but also see an end to restocking and thus an end to record-setting import buying. What is now needed, they maintain, is “a sustained recovery in non-Chinese demand.” Yep, can’t argue with that.
Here’s how far we’ve come for the first 10 months of ‘09 for LME cash:
(per pound) 12/31/2008 10/30/09 % change
Aluminum 66¢ 86.32¢ 30.8%
Copper $1.393 $2.9824 114.1%
Nickel $4.9033 $8.3756 70.8%
Lead 43.05¢ $1.0532 144.6%
Zinc 50.8¢ 99.56 ¢ 96.0%
Tin $4.6970 $6.6928 42.5%
Going back to last week’s BIR meeting, the nonferrous folks were generally more upbeat compared with those in the ferrous camp. But, as remarked by Bob Stein of Alter Trading, the outlook “seems to be one of guarded optimism in our industry.”
Guest speaker Michael Widmer of Merrill Lynch (UK) discussed the major price influences we’ve seen so far the year, specifically citing the weak US dollar, high Asian growth, as well as diversification out of the dollar and into other currencies. Gross domestic product (GDP) growth, he said, has been less of an influence while China has been the “mainstay of metal demand.” At the same time, the global economic rebound has been driven by the public sector and, as government spending declines, GDP growth will also moderate causing overall metal consumption to suffer over the next couple of years.
Despite some earlier caveats, global GDP growth, according to Widmer, is still expected to post a sharp rebound next year with copper forecast to average $3.175/lb in 2010.
