Q4 / 2011
 
> WAXMAN INDUSTRIAL
> SCRAP CARES
 
  Ferrous scrap pricing, demand, and supply successfully navigates troubled waters
  by Doug Malcolm
 

Third quarter scrap pricing remained remarkably stable throughout the summer months. This narrow band of pricing for ferrous scrap continues to exist as we move through the year. Year over year pricing has not deviated substantially, providing a welcome less volatile pricing period in contrast to the previous three years. This pricing stability is quite surprising in light of the current pessimistic world economic outlook. The current economic outlook differs dramatically from the much brighter outlook of a year ago. Large reservoirs of scrap were severely depleted in 2008 with the big run-up in prices and this reservoir may take awhile to rebuild. Today we seem to be successfully treading a very fine balance between supply and demand, which could at anytime trigger dramatic price fluctuations if upset.

North American steel demand continues to hold up in the face of extremely high government and personal debt levels, no doubt a direct result of the central bank’s low interest rate policy. Government economic stimulus continues on both sides of the border for now, although we cannot expect the governments to continue this stimulus due to mounting debt levels. North American automotive production increased in the third quarter, as the auto sector resumed full production schedules after their supply disruptions of the second quarter. However, automotive demand began to soften towards the end of the third quarter - this will have to be watched closely and its resultant effect on steel demand in Q4/11.

European markets continue to roil as uncertainty persists with regard to the financial stability of certain eurozone countries. We see no end in sight to this problem, due to government’s reluctance in tackling the problem through drastically reduced expenditures and increased taxation. China has begun a more restrictive fiscal policy which in turn has lead to the recent price drop in many world wide trading commodities. We expect this trend to continue and the resultant downward pressure on world steel pricing. On a brighter note, steels scrap exports to Turkey, North Korea, and Taiwan proved very strong throughout Q3/11. This tonnage mainly comprised of #1 Heavy Melt, which certainly eased the supply situation on the North American east coast, where build up had become an issue during the summer demolition season.

In Ontario prime ferrous scrap prices stabilized over the summer months. Resumption of the North American auto sector was certainly a major factor in this stability. The inventory of this material remains low however, and until stockpiles are sufficiently replenished, upward price pressure may persist. Locally the resumption of steel making at USS Canada Hamilton Works is welcome news for the scrap marketplace.

We feel that the price stability of ferrous scrap throughout the second half of this year has been quite tenuous. World economic news is grim, and the US economy continues to underperform. Government and consumer spending will weaken in the coming months, and a reduction in steel demand will result. Our outlook for Q4/11 is for considerable downward pressure on ferrous scrap commodity pricing.

 
 
  % change during previous quarter (first month to last month), Hamilton, Ontario consumer buying prices.
  SCRAP METAL COMMODITY TRENDS
 
No.1
BUSHELLING
-6.94%
 
No.1
CUT STRUCTURAL PLATE 5’ MAX
-3.80%
 
No.1
HEAVY MELT
-4.20%
 
No.1
BUNDLES
-8.12%
  % change during previous quarter (first day of month to last day of month), LME 3 month sellers price.
  NON-FERROUS COMMODITY TRENDS
 
ALUMINUM
-10.78%
 
COPPER
-23.81%
 
NICKEL
-21.21%
 
ZINC
-19.75%
 
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waxmanreport@waxmanindustrial.ca