Ferrous scrap processors and traders need little statistical backing to remind them of what they are experiencing every day—the demand for scrap from their steelmaking buyers has receded, bringing it with painful pricing and scrap flow disruptions.
Nonetheless, a statistical portrait emerged throughout 2015 that demonstrated where less steel was being made, where less scrap was being shipped to and how far the value of ferrous scrap globally has fallen.
Adjusting to suit the new landscape has fallen on the shoulders of recyclers, iron ore miners and, perhaps most importantly, steelmakers, with an ongoing story line in 2016 likely to be which companies make adjustments voluntarily and which ones are forced to have new terms dictated to them by creditors.
At the Bureau of International Recycling (BIR) 2015 Autumn Roundtable Sessions, held in Prague in late October, presenters at the Ferrous Division meeting provided some “state of the industry” comments as well as making some predictions as to how their sector might fare in the near future.
“The markets in the EU region have been depressed [prompted by] the constant flow of Chinese semi- and finished products flooding the main EU markets,” said Tom Bird, a BIR Ferrous Division board member and managing director of U.K.-based Metallis Recycling Ltd.
Bird also reviewed the consistently high output levels of China’s largest steelmakers despite their deteriorating financial conditions, calling the circumstance “the driving force behind the current predicament of the global steel scrap market. Clearly there needs to be a change in the approach by China.”
Ferrous Division Chairman Bill Schmiedel of Sims Metal Management also reviewed the Chinese steelmaking situation, commenting that “the chairman of a major Chinese steel producer has said that the Chinese steel industry is facing losses of $2.8 billion for the first eight months of 2015.” Even among state-owned enterprises (SOEs) with a mission in part to help provide full employment in China, Schmiedel said the flawed logic of keeping steel output at its sustained historic highs is beginning to become apparent.
In the current red-ink scenario, excess steel SOE employees “cost around $30,000 annually, which is a multiple of their true wages,” said Schmiedel. “Therefore, it will be cheaper to pension out these workers than continue to operate at such large losses.”
Schmiedel continued, “Frankly, I do not know” what the timetable is for mill shutdowns to occur, “but I can’t help but think that these dynamics are not unknown to Beijing.”
The changing nature of the metals production and scrap recycling industry in China was a foremost topic at 2015 Annual Convention of the China Nonferrous Metals Industry Association Recycling Metals Branch (CMRA), which took place in Ningbo, China, in early November.
Although the event focuses on the nonferrous metals sector, presenters from government ministries and companies based in China frequently used the phrase “new normal” to describe the current environment of slower gross domestic product growth and tapered back metals production in that nation.
Speaking at the opening session of the convention, Gao Yuahu of China’s Ministry of Industry and Information Technology (MIIT) said the “new normal” in China points to slower economic growth, but he added that recyclers enjoy an advantage.
“We want to transform the green sector as the new strength of our economy,” Gao said regarding several policies in the works in Beijing. These policies will “coordinate, prioritize and develop the low-carbon circular economy,” he added.
These words may give hope that as older, basic oxygen steelmaking furnaces are retired, the scrap-fed electric arc furnace (EAF) sector share can rise in China.
“The recycled metal industry has become an important priority, [but] we have developed specific plans to phase out the backwards capacity,” Gao said, referring to polluters and energy-intensive operators.
In the short term, steelmakers and scrap recyclers around the world are more interested in the capacity cutbacks in China rather than in whether the EAF sector will grow.
Through the first 10 months of 2015, China had produced 2.2% less crude steel than it had in the same period in 2014, according to Brussels-based WorldSteel. The volume of Chinese-produced steel imports into the United States and other nations indicated, however, that China’s domestic demand for steel has fallen by far more than just 2%.
In nearby nations, steel producers that on average pay far more attention to their balance sheets have been scaling back output in response to China’s slack demand. According to WorldSteel, in the first 10 months of 2015 Japan produced 5.1% less crude steel and both South Korea and Taiwan produced 3.6% less steel.
The effect on ferrous scrap exporters on the Pacific Coast of the United States also has been clear. In the first eight months of 2015, compared to the same period in 2014, ferrous scrap exports from the U.S. to China fell by 7.6%; to Taiwan, by 25.4%; and to South Korea, by 35.1%.