Final Thoughts

An example of this occurred in 2003-04. The backdrop: Several new EAF flat-roll mini-mills had begun operating in the 1990s. Yet scrap prices in the US in the preceding five years were well under $200 per gross ton (gt). Why? Low steel demand and ongoing solvency issues for integrated producers.

What changed that dynamic? Scrap exports levels, driven by an expansion in Turkish steelmaking capacity (and an EAF heavy expansion at that), started to rise. And as export volumes continued to increase, US steelmaking production recovered. The result? Prices for ferrous scrap took off.

The factory bundle index at the end of 2003 was already approaching a record high in the $180s/gt. Prices then catapulted higher in 2004 and finished the year at $440/gt. Companies made or lost fortunes, depending on how they played their cards. But after that initial surge, scrap prices established higher floors and higher ceilings that proved durable. Were there ups and downs? Sure. Scrap prices, however, subsequently held around roughly the $400s/gt level.

In the late aughts, many again began to worry about a potential scrap shortage. But as things turned out, mills absorbed the increased price of scrap. There was plenty for everyone, both here and abroad. Several countries took protectionary action by imposing tariffs or quotas. But this was short-lived. So, there was really no scrap shortage. The price, however, certainly remained high.

Jumping ahead to 2026, we find ourselves questioning once again whether the steel industry will face shortages in the near future. We do not have a reliable answer. But the one thing we all know is demand for scrap will continue to grow. The main reason: the electric furnace is the preferred method of production. EAF production is compatible with the decarbonization goals of the planet. It is also considered to be a more economical way to produce steel. There are only a handful of countries that have plans to build more blast furnaces to expand their production. In the West, there are none.

But all these EAF expansions are predicated on reasonable access to sufficient scrap supplies. The supply must be available at a cost that allows conversion into the various steel products with an adequate profit. This is the real question that needs to be answered. And there are several headwinds for accessibility to reasonably priced scrap.

In today’s arena, for example, widespread steel tariffs are a concern. It’s a hard trend to stop. Nations seek to protect their domestic steel industries from the effect of tariff impositions in major markets. It creates a domino effect. No one wants to be without tariffs and on the receiving end of exports that have fewer and fewer major markets to target.

Another concern is the sheer increase in demand for scrap by countries seeking decarbonization or expansion. There are also pressures from the global overproduction of steel, which results in exports that artificially lower steelmaking in importing countries – and hence lower scrap demand in those countries as well. After these exports are reined in, one way or another, will steel-producing nations be able to access affordably priced metallic feed?

To answer this and to more clearly portray the shortage question, we just have to consider the current situation of scrap availability to Turkey. Turkey’s main product is rebar and other long products. During the past two months, weather conditions, high freight costs, and rising domestic scrap prices in countries the Turkish mills source material from have all contributed to the increased cost of scrap on a delivered basis to Turkey.

Meanwhile, various factors have weakened rebar prices in Turkey to the point where there is little room for a reasonable profit using imported scrap. With markets in North America and Northern Europe not showing seasonal weakening yet, imports are too expensive now for Turkish steelmakers. Going forward, either scrap prices have to come down or rebar prices need to rise. It is uncertain if, or when, this will occur.

Is there an actual scrap shortage? We are a long way from this potential. But not being able to pay for the requisite amount of material to produce certain grades of steel on a profitable basis functions like a scrap shortage. As countries around the world continue with tariffs, quotas, and other protectionist or decarbonizing measures (CBAM in Europe, for example), the industry may face these types of de-facto shortages.

In short, we should table the question of a global scrap shortage for another time. Broadly speaking, there should be enough scrap to go around. The question we should consider more urgently: Do regional dislocations – whether caused by tariffs, carbon regulations, weather, or conflict – allow scrap to go where mills need it most at a price they can afford?

SMU Community Chat

Want to talk more about scrap? Then join SMU for a Community Chat with George Adams, CEO of SA Recycling, on Wednesday, March 11, at 11 am ET. You can register here.

We’ll talk about how Adams grew the business from a family yard to one of the largest privately owned recycling companies in the the US.

We’ll also discuss how he sees the current scrap market shaping up in an era of increasing EAF production in the US abroad, rising tariffs and other protections domestically and overseas, and an increasing differential between steel and ferrous scrap prices.

Don’t miss out. Register now!