Adam Dumes, executive vice president of Cohen Recycling, opened the Ferrous panel at the 2022 ISRI Roundtables on Wednesday, Sept. 14, with a discussion about ISRI’s work to address the potential railroad strike, which, prior to the early Sept. 15 negotiations, was a looming subject on many attendees’ minds.
“ISRI has a great relationship with the Surface Transportation Board (STB),” Dumes says. “Labor union contracts get negotiated every five years, so we were aware of this issue and initiated dialogue ahead of the game. ISRI also wrote a letter to the House Committee on Transportation and Infrastructure and the Senate Committee on Science, Commerce, and Transportation highlighting our industry’s dependence on rail service and the significant impact a strike would have.”
Ferrous Markets and Trends
After Dumes’ remarks, Blake Hurtik, editorial manager for metals, fertilizer, and chemicals at Argus Media, provided an overview of the ferrous markets. While prices appear smaller when compared to a year ago, Hurtik recommends looking at pre-pandemic price levels to get a sense of the big picture. “The mill margins we’re seeing now are above the level they were before the pandemic,” he says. “Is that the new normal? Or will it revert to pre-pandemic levels?”
After discussing consolidation within the industries, Hurtik reviewed demand factors and what recyclers can expect coming down the pipeline. “Demand is only going to increase over time, the question is whether it’ll be ‘scrap mania,’” he says.
He noted that mergers and acquisitions in the recycling space really amplified in 2021. “Buying up key assets in areas where new assets were coming online, the big independent recyclers are adding to their blueprints to compete with the mills that are controlling more of sheer processing capability,” he says.
EU and Ferrous Exports
Sean Davidson, CEO of Davis Index, shared what might be on the horizon for the ferrous industry particularly the situation in Europe. “European steelmakers are trying to convince the EU that it makes sense to curtail exports of recycled ferrous,” he says. “They claim that they need the raw materials to stay within the EU and want a full blanket ban on exports.” The latest version of the draft policy could ban exports to developing countries—countries that are not among the 38 members of the Organization for Economic Cooperation and Development (OECD). Exports to non-OECD countries would only be allowable if they can manage the materials sustainably.
“Most people don’t think they’ll succeed with the ban, some people believe it will have some success in banning ferrous but not nonferrous exports,” he says.
Economic Drivers and Regulatory
Joe Pickard, ISRI’s chief economist and director of commodities, discussed economic drivers impacting the market as well as economic policies. Steel user sentiment globally in August was low particularly in North America and Europe due to concerns about inflation and supply chain bottlenecks. “In the manufacturing sector there’s a divergence of opinions about whether things are improving or not,” he says.
He added that there are worrying signs in the U.S. housing market. In July, sales of new single-family houses in the U.S. decreased to annual rate of 511,000 units down month on month and down 30% compared to this time last year.
“Part of the issue are supply chains and the increase in interest rates and borrowing rates that are set by the Federal [Reserve] funds target rate,” Pickard says. “We continue to see the labor market adding significant number of jobs; the inflation readings have continued well above the Fed’s 2% target.” The Federal Open Market Committee (FOMC) raised the target range for the federal funds rate by 75 basis points, or 0.75 percentage points, at its Sept. 20-21meeting.
One of the impacts of increased rates is the appreciation of the U.S. dollar. “That situation weighs on commodity prices that are denominated in dollars,” Pickard says. “We’ve already seen commodity prices pull back since April.”
Pickard also discussed some positive policies for the industry including the new infrastructure package for the industry including the new infrastructure package, presidential executive orders on clean energy and critical minerals setting net zero initiatives for building materials, and the Inflation Reduction Act, which has incentives for battery production and recycling sourcing in North America and grants to improve recycling of batteries and electric vehicles.
“Taken together, these policies are expected to be net positive for demand for recyclables going forward domestically even as we confront domestic and international headwinds,” he says.
Photos Courtesy of ISRI.
