It is acknowledged that the planet is getting warmer, whether it is a cyclical shift, or something more sinister and man-made. Regardless of which, the lack of snow on the ground this year ensured that flows of obsolete scrap remained good as we moved through January. Coupled with the word that some dealers were content not to sell all their tons in January in the expectation that prices would be strong in February, it is clear where the recent downward pressure has arrived from. 

Moving into the last week of January (week commencing Jan 30 and ending Feb 5) the price fell off US$23/long ton for TSI’s weekly benchmark Midwest shredded index (del. mill), taking the price to US$446/l.ton. Reports also said that early birds made the best of the market, with one dealer describing it as a case of “the quick and the dead.” Since then, February prices fell further, before coming back a little.

One man’s meat is another man’s poison, so whilst the mills have been delighted by the auto/manufacturing pick-up since November (when hot rolled coil was at US$623/short ton), the good PMI news propelling demand (and prices) for sheet had a somewhat negative aspect for anyone dealing in industrial scrap. Stampers and blankers have been going at full tilt and making hay while the sun shined, but meanwhile the offcuts were building up to create something of an overhang of prime grades – doing the obsolete market no favours. Whilst the sheet market may have seen some of the steam come out of it (seeming to peak at US$748/short ton on Jan 9 and easing back to US$728/s.ton by Feb 13), mills will wish the tailwinds behind the Midwest’s industrial output to keep blowing.

The March outlook for scrap seems uncertain with low alternative iron prices potentially capping movement for industrial scrap (which is not ‘scarce,’ regardless). Obsolete export markets on both coasts have ticked up (Taiwan and India for containers, Turkey on the bulk side) – but will this be enough to bring Midwest frag prices back up, or will domestic demand have enough ‘fizz’ on its own (RG’s Warren furnace was temporarily idled recently for repair)? It’s hard to find market conviction any particular way at present.

So: what’s a scrap vendor to do? Arguably, processors exist to make a good return transforming inbound material into clean, low impurity scrap, ready for recycling, rather than taking positions in the market. Indeed, many have told us of a desire to be able to hedge to be able to “sleep at night as buy-week approaches.” Gate prices can be dialled up or down throughout the month, but whilst flow is being restricted or encouraged to support the price, it will only serve to encourage a volatile market. Efforts are afoot to provide a financial tool for the US scrap market as well and this may be the thing to allow purchasing to take place throughout the month (rather than in one slug) and calm see-sawing earnings at processors and yards. The TSI-based contract for Turkish scrap imports continues to trade and clear on LCH.Clearnet, and a domestic US scrap contract is likely to see liquidity build quickly, especially considering the installed base of US HRC hedgers.  

More about Tim Hard
Tim joined The Steel Index in 2009. As the Director of Steel & Scrap, he is responsible for TSI’s global development and promoting the benefits TSI can bring to play in price indexing and price risk management. Tim also set up TSI’s scrap price coverage and continues to expand the regions being tracked. Prior to this, Tim was a senior consultant in the strategy division of CRU International, an analysis company studying global mineral and metals markets. If you’d like to reach Tim, e-mail him with comments or questions at hard@thesteelindex.com.

Earlier this week I discussed some of the general themes and take aways from last week’s MSCI Carbon Conference.  Below is a deeper look at one presentation in particular:    

Jeff Garten, former dean of Yale School of Management and expert on Global Business Strategy, gave a great presentation.  While gloomy at parts, he provided an insightful view of the current global economy. I’d like to recap the part of his presentation that I found most interesting, that is “5 Global Trends to Focus On.” 

Having a global view is more essential now than ever to all businesses and hopefully these trends will continue to drive insight and discussion:

There were speakers from a wide array of backgrounds.  Stuart Rothenberg, a political handicapper, spoke on the current political situation in the U.S. and how this year’s election could affect the country and the steel industry more particularly. 

Jeff Garten, former Dean of Yale School of Management, also had a great presentation.  He focused mainly on the global economy.  While he provided a gloomy outlook for the most part, he did provide examples of opportunities that lie ahead and if taken effectively, could be great for the domestic economy, particularly the steel industry.

Later on in the day, there was a roundtable discussion of senior metals industry executives. The roundtable was made up of Maj. General John Batiste, Klein Steel; James Hoffman, Reliance; Michael Hoffman, Klockner; Charles Schmitt, SSAB; and Vicente Wright, California Steel.  This roundtable was interesting and informative.  The overwhelming theme continued to be the slow but steady recovery.  The consensus was that 2011 was incrementally better than 2010, and 2012 will be incrementally better than 2011.  

The executives stated that the automotive, energy and agriculture sectors continue to be the strongest sectors of the economy, with construction lagging behind.

Chad Moutray, chief economist, National Association of Manufacturers, spoke about the overall health of domestic manufacturers.  A key theme of Chad’s presentation was reshoreing taking place in the U.S. that could boost the economic health of manufacturing moving forward.

Some of the key issues he stated for the increase in companies moving their manufacturing facilities back to the U.S were; costly Chinese labor, more expensive transportation costs, expensive Japanese Yen, poor/unreliable quality of products, and taxes, regulations, and tariffs. 

Overall the theme from the conference was positive and upbeat.  Patience was stressed when it came to the domestic steel industry, as there is a light at the end of this long, dark tunnel that we have been in. 

1. On Wednesday we’ll see the existing home sales data from January. Existing home sales have climbed the previous three months, and another strong report to get 2012 started will be great news for the residential sector.
2. Continuing on the residential construction theme, Friday brings us January new home sales data. Unlike existing home sales, new home sales slipped in December and are looking to regain some positive momentum heading into 2012.
3. Rounding out the construction releases this week is the Architecture Billings Index (ABI), out on Wednesday. After a flat reading of 52.0 in December, another positive release from January will be good news for the sector that seems to be running in quicksand.
4. The final monthly reading for the Reuters/University of Michigan Consumer Sentiment Survey is out on Friday. After unexpectedly slipping 2.5 points to 72.5 with the initial estimate two weeks ago, an improvement with the final reading will be seen positively.
5. Thursday brings us the weekly initial jobless claims data. After sliding to a nearly three-and-a-half year low last week, more declines this week will continue to paint a brighter picture ahead of the jobs report out next week.

On January 11, 2012 the EPA released a new greenhouse gas (GHG) data report, outlining greenhouse gas emission data from large facilities and suppliers across the U.S. economy from the year 2010. According to the EPA, the purpose of the new reporting program is “…to help businesses track emissions and identify cost- and fuel-savings efficiencies, identify industry leaders, inform policy at the state and local levels, and provide important information to the finance and investment communities.” 

The online tool allows users to view greenhouse gas emissions in large facilities by state, facility name, industry, and the type of GHG emitted. It includes data collected from over 6,700 facilities and suppliers and focuses on operations that emit more than 25,000 metric tons of carbon dioxide on an annual basis. Data from the agricultural industry is not included in the report.

According to the report, power plants were the largest sources of direct emissions in 2010 with a total of 2,324 million metric tons of carbon dioxide equivalent. To put this in perspective, that’s the equivalent of annual greenhouse gas emissions from 455 million passenger vehicles. Compared to the power plant industry, iron and steel producers look much better, with 82 million metric tons of carbon dioxide equivalent produced in 2010 (equivalent to emissions from 16 million passenger vehicles). 

Although GHG emissions from iron and steel producers look minimal compared to power plant emissions, it’s still high enough to make a significant impact on the state of the global environment. Global climate change, specifically, global warming, is a major negative effect that comes from high levels of GHG emissions. Many scientists believe these emissions have caused a rise in the average global temperature of about 1.3⁰F over the past century. At the current emissions pace, an increase of 3⁰F to 7⁰F is expected to be reached by the year 2100.

As a large producer of GHG emissions, steelmakers are taking notice of the negative effects steel production has on the environment, and are taking matters into their own hands. The World Steel Association, which includes 85% of the world’s steelmakers, has a program that requires members to know their carbon footprint in order to identify potential for improvements. Much of the improvements will depend on advances in steel-making technology and best practices across steelmakers. The recent trend toward recycling is also alive and well in the steel industry, as many steelmakers encourage recycling of their products, reducing the production of new greenhouse gas intensive materials.