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Ferrous metals - 29 June 2012

Most of the UK’s ferrous metal recycling companies - from the largest multinationals to the smallest family-run businesses - are having a hard time.

Steel production in India, China, Japan and Vietnam is rising and UK plants are still fairly busy

Raw material shortages, mainly due to the slowdown in industrial output, are affecting all sectors of the trade, while stocks of finished grades on docks and wharves are building steadily.

One particular difficulty, that of low arisings of raw materials, has been with us for some time, and the industry has grown accustomed to expensive processing equipment lying idle for some part of each working week. But real difficulty in finding export markets for finished grades is a relatively new problem. And, on the face of it, this is not due to any fall in world demand.

Eurozone steelworks, with the exception of Turkey, are dead in the water. But steel production in India, China, Japan and Vietnam is rising while UK plants are still fairly busy. It is these plants with stable monthly prices that have kept UK ferrous metal recyclers afloat for the past month or so.

Historically, UK steelworks’ prices and dockside prices started a month on par. But then by implementing small increases during the month, exporters have secured extra tonnage. But that has changed during the past six or seven weeks.

Now, even with export prices slowly but surely falling by as much as £30 per tonne each month, UK buyers have mainly stuck to their ongoing policy of fixed prices as per monthly agreements and did not cut prices until the beginning of June.

However, as exports continue to decline, the gap is again starting to widen. For this reason, Tata Steel in Port Talbot and Scunthorpe, Celsa Steel in Cardiff, Sheffield Forgemasters and, to a lesser extent, Sahaviria Steel Industries (SSI) in Redcar are probably all buying a bigger share of the available tonnage than usual.

At present, this is likely to continue until the first week in July, when home market prices will again fall and come into line with those paid by exporters.

The big questions are: when will exports pick up and resume their traditional lead on prices, and when will UK industry recover and start to provide the raw materials so desperately needed by ferrous metal recyclers?

The answers to both questions largely depend on an improvement in global and UK industrial output.

And herein lies hope because, clearly, any increase in steel production will eventually result in more scrap coming into recycling yards.

Encouraging signs close to home included news on 12 June of a production record at the giant Tata steelworks in Port Talbot and the arrival in Thailand on 16 June of the first 48,000- tonne shipment of steel slab from the revitalised SSI plant in Redcar.

At Tata, in a rolling process that comes after forming slabs of steel 12m long weighing about 20 tonnes, the plant’s hot rolling mill broke its previous record by rolling 14,000 tonnes of steel in just one day - 300 tones more than ever before. This comes after the company set a new weekly production record of 81,000 tonnes, beating its previous record by 1,400 tonnes.

A spokesman said: “This is a fantastic achievement for all who work here. It is the first time the mill has rolled more than 80,000 tonne in a week, and a record that follows on from the news that the company has permission from Neath Port Talbot Council to build an £185m blast furnace that should be in production for the next 25 years.”

Despite this, Dr Kari-Ulrich Kholer, chief executive of Tata Steel Europe, sounded a warning note on business in the eurozone.

He said: “The eurozone crisis had kept EU steel demand well below pre-crisis levels in the March quarter. Operational difficulties affected strip product and caused European operations to perform worse than in the year earlier period.”

By comparison with Tata’s figures, the first shipment by SSI from Teesport to Prachuap port in Thailand is small. But a cargo worth $30m (£19.3m) is still a significant cause for celebration.

Phil Dryden, chief executive of SSI UK, said: “We are delighted with the progress made since the start of operations last month, and the first shipment is another important milestone in establishing the SSI UK business.”

Other pluses include steady demand and fairly good payment terms from all UK steelworks, and a global increase in steel production of 0.7%, from 129.6 million tonnes in May 2011 to 131 million tonnes in May 2012.

Bearing these figures in mind, the long-term outlook for UK recyclers is rather better than the short term, which still poses considerable problems.

By far the worst of these is the ultra-low intakes of raw materials that is now being exacerbated by a drop in selling prices. It is forcing individual firms to make drastic cuts in factory collection and gate prices.

For example, the price of new production offcuts in the Midlands has fallen by £50 per tonne in the past six weeks; and with stocks on south Wales docksides and steelworks going up, extra finance is necessary.

Another problem associated with cash flow relates to the increasing preponderance of home market sales, and sales of complete cargoes over export boxes that require only about a week’s credit against up to 60 days for the other two options.

This is a gain that has led many smaller companies to invest around £50,000 in the lifting equipment that enables them to handle and load the containers in their own yards.

Unfortunately, there have not been enough empty containers in Europe during the past two or three months, and several sources report a waiting time of up to four weeks. But even here there is a bright side - a box price for shipment to India has dropped from more than $2,000 to $1,725 during the past few days.

Good news by any standards, even if tempered by shortages and the fact that $1,725 is still considerably more than it was last year.

What ferrous merchants around the country are saying

North-east: “It’s been terrible for the past two or three months. There is very little material about and everyone is trying to buy it - so everyone’s margins are cut to ribbons. Light at the end of the tunnel? Not at the moment.”

Midlands: “The prices have gone down a little in the past 10 days. It’s a lot to do with what is going on with the banks and in the eurozone. It’s hard to know what is round the corner - you just have to wait and see. With the non-ferrous sector, everyone is too scared to sell because prices are dropping everyday and they are holding on to metal and waiting for the price to go up. So maybe that is having a knock-on effect on ferrous.”

Scotland: “Freight rates dropped a bit last week, but that is no good to us because there just aren’t enough containers available. This is because there is a shortage in Europe, and also because only a few suppliers have the type that can be used for recycled metal.”

North-west: “Prices were down a couple of weeks ago but it hasn’t moved in the past 10 days. It’s all quiet, and the local construction industry is the same. How it improves will depend on what happens in the eurozone. The whole world is jittery.”

Yorkshire: “There has been no change since the beginning of the month. People have accepted the drops and are finishing off their orders. We’ve got used to the drop but no-one is speculating. Trading is very, very difficult at the moment - the only good news in this area is that Rolls-Royce will create around 150 new jobs to make turbine blades in the Rotherham area. But we’ll have to wait because that will happen in the next 12 to 18 months.”

South: “Metal is still coming through the door but at half the quantities as before and you’re not seeing people as much. I can’t see it getting better now that August is coming up and people will be on holiday.”

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