Steel makers get into the junk business to feed new mills

Nucor Corp., the largest producer of steel in the US, Cleveland-Cliffs Inc. And North Star Bluescope Steel spent more than $1 billion for steel scrap processors in 2021 as millions of tons of annual production capacity is being added to the domestic steel market. In response to increasing demand. Steel Dynamics Inc. bought a Mexico-based scrap company in 2020 to help supply a new completed mill in southwest Texas.

Indiana-based MetalX LLC began supplying North Star BlueScope in early 2019 with scrap from a yard that opened across the street from North Star’s Delta, Ohio, mill. In November, North Star agreed to buy Delta Yard and the rest of MetalX’s steel-scrap. Processing operations in Indiana for $240 million. Mark Vasella, chief executive officer of Australia-based Bluescope Steel Ltd, told employees in a message on 20 December that the purchase “helps to ease North Star’s supply chain and the competitiveness … of North Star’s scrap collection in-house.” Bringing the part.”

Metalx chief executive Danny Rifkin said North Star’s scrap consumption is expected to increase as it completes next year to expand its steelmaking capacity by about 40% to 3.3 million tonnes per year.

“The landscape has changed,” said Mr. Rifkin. “Companies like BlueScope will need the ability to keep a meaningful percentage of the scrap requirement covered by their own supplies.”

Record high prices for steel and a nearly 20% increase in US steel production over the past year have encouraged steel company executives to expand. About 10 million tonnes per year of new capacity for making flat-rolled steel is expected to enter service by the end of 2024, on top of the 8 million tonnes already added during the previous two years.

The new mills make steel by melting scrap or processed iron in electric furnaces, a production process that now accounts for about 70% of the steel made in the US. It is a low-cost process with fewer carbon emissions than making steel from iron ore. Melted in a coal-heated blast furnace.

But the process is putting more pressure on the US junk market. Steelmakers’ scrap purchases from October to October were up 17% from the same period last year, according to Pennsylvania-based consulting firm Metal Strategies.

According to World Steel Dynamics, a market data and consulting firm in New Jersey, the average spot market price for one ton of used scrap, generated from scrap cars and used equipment, ended 2021, up 26% from the end of 2020. The price of prime scrap – a clean, non-contaminated grade harvested mostly from metal stamping plants and machine shops – rose 34% to $540 a ton in 2021.

“Prime scrap is one that will become increasingly scarce as steel mills increase electric furnace capacity,” said Philip Anglin, chief executive of World Steel Dynamics.

Cleveland-Cliffs said rising prices of prime scrap and its mostly stagnant supply in recent years prompted the company to acquire Detroit-based Ferrous Processing & Trading Company in November. Industry analysts said that at $775 million, it was the most expensive purchase of a scrap processor in a dozen years.

Ferrous Processing, a major collector of major scrap from automotive-related manufacturers, operates 22 scrap sites in the US and Canada, most of which are located in southeast Michigan and northern Ohio. According to Cliffs, the company has a 15% share of the US prime market, which uses scrap to make stainless steel and specialty steels for electric-vehicle motors and transformers.

Cliffs CEO Lourenco Goncalves said he expects ferrous processing to benefit Cliffs in obtaining prime scrap.

“We have a big beast for Cleveland-Cliffs that can get our hands around as much prime scrap as we can,” Mr. Goncalves told analysts shortly after the deal was announced.

Cleveland-Cliffs is the largest supplier of steel to the automotive industry. Mr Goncalves said he envisions using those sales to increase the company’s key scrap supply by negotiating scrap purchase contracts with Cliffs’ automotive customers and using Ferrous as its collection and processing agent.

“We’re going to reclaim our scrap that comes from our steel,” he said. “It’s a closed loop.”

Nucor and Steel Dynamics, which have operated the scrap business for more than a decade, are tightening their own scrap-collection loops as they expand steel production.

This fall Nucor’s scrap subsidiaries acquired Garden Street Iron and Metal Inc. in Fort Myers, Fla., and Grossman Iron and Steel Company in St. Louis. Terms of the deals were not disclosed. Nucor operates 65 scrapyards. The latest acquisitions give Nucor scrap sites in areas where the steelmaker is building new mills or expanding existing plants.

Grossman Iron has access to the Mississippi River, allowing Nucor to ship scrap from the banks of the river to its mills in the area, including a mill under construction along the Ohio River in Brandenburg, Ky.

“One of the important things about scrap is the cost of where you move the scrap,” said Doug Jellison, Nucor’s executive vice president for raw materials. “Grossman fits in a great position to support a large percentage of our growth.”

Steel Dynamics purchased Monterey, Mexico-based Zimmer SA de CV in 2020 to supply its new mill in Sinton, Texas. Steel Dynamics is also increasing the use of obsolete scrap, which is cheaper and more readily available than prime, as the quality of obsolete scrap improves with better shredding and processing equipment.

Metalx’s Mr Rifkin sold his Omnisource Corp scrap business 14 years ago to Indiana-based Steel Dynamics in a cash and stock deal worth nearly $1 billion. He started MetalX about five years later. Now that he is selling a part of that business, he said he is not interested in getting back into the steel scrap market for the third time.

“Opportunities for independent scrap dealers are going to be more limited,” he said. “I’m not looking forward to coming back and trying again in five years.”