Source: Worldsteel Association, www.worldsteel.org

Source: Association des Constructeurs Europeens d’Automobiles, www.acea.be; *Europe figure includes EU28 + the EFTA (European Free Trade Association area)

Source: U.S. Census Bureau and U.S. Geological Survey, http://minerals.usgs.gov.

A Chinese economy that is consuming less finished steel and a global steel industry that is producing millions of fewer tonnes per month as a result continue to lead to low pricing and tight supply for ferrous scrap.

By some measures, the global economy has started out 2016, as of mid-February, on more positive footing than feared by some securities analysts and when compared with stock market indices worldwide.

Which fears of 2016 economic turmoil will be realized and which ones will have proven to be false alarms cannot be determined after just six weeks, but household consumers around the world have continued to buy cars and appliances, and corporate earnings reports have not been especially troubling.

On the ferrous scrap front specifically, low pricing for steel, iron ore and ferrous scrap crossed over from 2015 into early 2016. Among the results of the low pricing is a slowdown in obsolete scrap supplies.

In the Bureau of International Recycling (BIR) January 2016 World Mirror on Ferrous Metals, George Adams of United States-based SA Recycling writes that ferrous scrap prices bounced back slightly in early 2016, based in part on a slight uptick in demand from U.S. mills but also because “the lack of scrap looks set to keep the market in a slight supply deficit into February.”

While domestic demand may be improving, another scrap broker based on the U.S. Pacific Coast tells Recycling Today Global Edition that demand from Asia has remained in the doldrums in early 2016. South Korean and Taiwanese mills are placing few orders, and he says it has been more than six months since he was asked to supply scrap for a bulk cargo heading to China.

Ferrous scrap processors and traders in parts of Europe suddenly have become more dependent on export markets with the idling or severe curtailment of production at steel mills in the United Kingdom and in Spain in early 2016.

In the U.K., where India-based Tata Steel has had a major presence in the last several years, the future of the company’s steelmaking complexes in that nation are in doubt in early 2016. Tom Bird of U.K.-based Mettalis Recycling Ltd. writes in the World Mirror, “No scrap was purchased by Tata in the U.K. for the final quarter of [2015] for its integrated plants at Port Talbot and Scunthorpe, and no scrap was purchased in December for its Rotherham plant, which traditionally has been the biggest consumer of steel scrap in the U.K.”

The company has announced further job cutbacks and production line idlings that have kept its scrap purchases suspended. “Tata announced at the end of 2015 that no scrap would be purchased by any of its U.K. plants, including Rotherham, for the first quarter of 2016,” Bird notes in the Mirror.

Southern Europe is faring little better in terms of regional supply and demand, according to Ruggero Alocci of Genoa, Italy-based Alocci Rappresentanze Industriali.

Alocci says that as of early February, Italian mills with reduced output were buying less scrap, causing scrap pricing to decline by €3 to €5 per tonne initially. “During the month, due to the low [mill] production rate and the mills’ high raw materials inventories, another €5 of reduction has been applied on the spot domestic market,” he says.

For steel mills in Europe and North America to have been curtailing capacity in 2015 and early 2016 seems at odds with automotive sales figures in both of those regions, which continue to climb, and with construction spending figures, which are solid if not booming.

The steel supply-demand imbalance that is affecting scrap pricing continues to lead back to China, where although steel ministry figures show output is beginning to retreat, it is still widely considered that a serious overcapacity situation remains.

As early as 2014, media outlets in China reported that national government ministries were aware of the steel overcapacity situation, and reports published at that time often referred to targeted production cuts.

China did reduce its steel output in 2015 by 19 million tonnes, but this represented only a 2.3% cut in a nation that is considered to have drastically reduced its levels of steel consumption because of fewer infrastructure projects and less office and apartment tower construction.

Media reports in early 2016 within China (by publications that essentially do not veer far from Communist Party messaging) began to identify specific barriers preventing further cuts from having occurred during the previous year.

A February 2016 article in the Beijing Review periodical touts the government’s efforts to address the problem of “zombie companies.” Referring to a December 2015 government-backed Central Economic Work Conference, the article’s author, Wang Jun, opens the article stating, “The final sentence has been written for the shutdown of zombie companies.”

Despite this opening declaration, Wang goes on to point to ongoing barriers to putting the zombies to rest permanently, including a quote from a vice minister who admits, “In practice, complete exit mechanisms [for state-owned enterprises, or SOEs] are not yet available.”