Is High Cost of Scrap Here to Stay?

Steel minimills, designed to remelt scrap in electric arc furnaces, took off in the ’80s and ’90s by leveraging their raw material cost advantage—an advantage that may be disappearing, said John Anton of IHS Global Insight in his remarks at ASD’s December meeting in Chicago.

The United States has been producing steel since 1900. The minimills had nearly a century’s worth of scrap surplus to work with—but not anymore, he explained. Scrap has become a global commodity and its supply is tightening, raising its price to unprecedented levels. The big question is not when, but if, scrap prices will ever return to prior levels, Anton said.

“The world depends on the U.S. for scrap the way it depends on Saudi Arabia for oil. We are the world’s scrap supplier. What goes on here really sets the price for the world.”

In 2007, the U.S. consumed or exported a total of 7.8 million tons of steel scrap at an average price of $257 per ton. In 2010, it consumed and exported just 7.2 million tons, yet the per-ton price rose to $325. “Consumption is not driving this,” Anton noted, “it could be something more serious.”

What if the world is reaching the point in steel’s life cycle when demand is starting to outpace the supply of scrap? “Either scrap is grossly overpriced and collapses in the next three months or it stays high long-term. Hopefully, the last three years were just aberrations. If not, that implies scrap could be $100 per ton higher forever. That means if you are buying from an electric arc furnace mill, your cost will be roughly equal to a blast furnace. [Minimills] would no longer have a cost advantage on metallics [vs. integrated mills],” Anton said.

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Monday, December 11, 2017