Demanding attitude.

U.K.-based publishing and consulting firm MEPS (International) Ltd. is predicting that demand for ferrous scrap will continue to strain the supply chain.

According to the company's calculations, a 7.5 percent increase in global steel production in 2004 vs. 2003 "implies a rise in demand for purchased scrap of about 25 million metric tons" for this year.

In a news release summarizing its findings, MEPS notes that 2004 scrap pricing reflects the increase in demand. "On an index in which 2001 prices equal 100, the shredded figure soared from 140 in November last year to over 210 in March 2004 before falling back to 157 in June. The price then regained upward momentum and accelerated to 247 by October. This represents a jump of almost 60 percent in four months. Other grades have shown still more dramatic leaps. When the market was in the doldrums a few years ago, No. 1 heavy melting scrap was being exported from Rotterdam for less than $70 per metric ton. Today the same business is being done at more than $280 per metric ton."

The downside of the skyrocketing scrap price has been a diminishing of the competitive advantage formerly enjoyed by electric arc furnace steelmakers, MEPS says, though they have been able to pass along their increased costs to steel buyers, keeping their balance sheets healthy.

Concerning the ongoing supply of ferrous scrap, MEPS researchers have as many questions as they do answers. "Increased consumption of steel results in an expanded supply of new production scrap: steel-using manufacturers generate more scrap as they step up their output. The availability of other grades is more uncertain," the group says.

Prompt mill scrap generation continues "to diminish as yields of finished product from liquid steel improve." In addition, MEPS notes the problematic outlook for obsolete scrap. "High prices have already stimulated an increase in the recovery rate in those industrial countries where the reserves exist. However, the rise in demand could accelerate to the point at which we start running out of old buildings to demolish."

A predicted scrap shortage several years ago was offset by the scrap provided by the tearing down of trade barriers with Eastern Europe. MEPS points to that region as a potential spoiler again.