This article is from the session Ferrous Spotlight: Ferrous Markets to Stay in Full Swing? during ISRI2021. If you would like to watch this session in its entirety, you can still register for ISRI2021 here. This session, along with others, are available to attendees on-demand.
President Joe Biden’s proposed $2 trillion in U.S. infrastructure spending contains plenty of opportunities for ferrous metals, according to experts on the panel Ferrous Spotlight: Ferrous Markets to Stay in Full Swing? at ISRI2021. But feedstock costs, oil and gas pricing, and the availability of shipping containers are keeping demand high and supply low for new and scrap metals. Strong Chinese demand continues to loom over the ferrous scene as business begins to recover from the COVID-19 slowdown.
“You had a massive destocking of the service center inventory system [in 2020],” Blake Hurtik, editor of Argus Metal Prices, says. “When demand came back, there was a lot of hand-to-mouth buying, and demand outpaced what was available for the mills. You saw us get in this chronically short-supply market. Now, with prices where they are, service centers and distributors are in a tough spot. No one wants to go long at elevated prices with the expectation that they could correct down, so they’re keeping inventories pretty low.”
Moderated by Christopher Bedell, senior vice president and general counsel for The David J. Joseph Company, and co-chair of ISRI’s Safe Operations Committee, the session focused on key factors driving the ferrous scrap and steel markets in 2021 and beyond.
The steel market in 2020 experienced new steel capacity utilization below 80%, Hurtik says. In March 2020 at the onset of the pandemic, prices for hot rolled coil retreated from about $600 per short ton to $450 in August. Since August, prices have spiked to $1,400 per ton. Busheled and shredded steel also recoiled from COVID-19: In December-January, they were between $80 and $100 per ton, and at $60 per ton in March. Separately, busheled and shredded prices diverged at a record pace, ending 2020 with $140 per-ton spread, compared to previous spreads of $30-$40 per ton, Hurtik says.
U.S. ferrous scrap exports in 2020 reflected the continued prominence of Asia as a quality scrap destination, according to Hurtik. Turkey imported 4 million metric tons of ferrous scrap, up 3% year over year. Taiwan imported 2 million metric tons in 2020 — a 12% decrease from 2019. Mexico was 2020’s biggest gainer, importing 1.9 million metric tons, a 32% year-on-year gain. Bangladesh, Canada, and Pakistan also took more U.S. scrap. Vietnam posted the biggest loss, importing 990,000 metric tons, a 21% decrease from 2019. India, Pakistan, and South Korea also imported less scrap in 2020.
Scrap shipping costs will eat into margins for the foreseeable future due to high shipping container prices, a driver shortage in the U.S. trucking industry, and railroad giant CN’s $34 billion bid to acquire Kansas City Southern. Hurtik indicates the ongoing semiconductor shortage could affect domestic vehicle production for another six months. These issues occur amid a 2020-2023 capacity boosting spree by ArcelorMittal, CMC, Nucor, SDI, and U.S. Steel. Because of those additions, production of merchant bar quality rebar, tubular, and sheet plate steel will need high-quality prime scrap.
Ben Pickett, Nucor’s general manager of public affairs, is feeling positive about the future, and eager to demonstrate his industry’s sustainability credentials. “The American steel industry has the lowest carbon intensity of the top seven leading steel-producing countries in the world,” he notes. U.S. steel producers already have met one-third of the Paris Agreement’s 2030 targets for greenhouse gas emissions. In addition to more efficient furnaces, steel companies are investing in solar, wind power, and other renewable energy sources — in 2020, Nucor invested in 400 megawatts of new renewable capacity, Pickett says.
More than two-thirds of U.S. steel production involves recycled scrap and electric arc furnaces (EAF). EAFs have a 26% share of steel production globally, Pickett says. Contrast that to China, where older, higher-emissions blast furnaces are the norm. U.S. producers are pleased by the Biden administration’s inaction on the three-year-old Section 232 tariffs on imported steel, as U.S. firms struggle to compete with state-subsidized industries overseas, he says.
So-called Buy American provisions in the proposed infrastructure bill will help American companies out of the COVID-19 hole, Pickett explains. “The government needs to continue to take active steps to encourage more domestic manufacture of critical products — particularly personal protective equipment, medical devices, rare-earth materials, critical pharmaceuticals and, of course, steel,” he says.
He notes that China produced 1 billion metric tons of steel in 2020, a 5% increase from 2019. In 2020, U.S. steel production fell 17% year over year (to about 72 million metric tons). China produces 65% of the steel form ties used in U.S. construction.
“We believe it is time to act to rebuild our infrastructure. We need a bold plan that provides significant funding to upgrade our roads, our ports, broadband and other infrastructure systems,” Pickett says. “We urge the Biden administration and Congress to pass a bipartisan bill this year.”