Power play.

Changes on the supply and demand sides of the global steel industry are boosting steel and ferrous scrap prices, attendees of the Ferrous Spotlight session at the Institute of Scrap Recycling Industries Inc. (ISRI) Annual Convention learned.

Securities analyst Mark Parr of KeyBanc Capital Markets, Cleveland, noted that in addition to the unprecedented global demand for steel, the supply side in North America has become better managed in recent years. Parr said that the demise of "non-profit" companies such as LTV and Bethlehem Steel has helped steelmakers compete more sensibly.

The consolidation that absorbed these firms has given the industry greater pricing power, according to Parr--"something the market did not have until 2004."

The industry's ability to tweak its production rates has helped better match supply with demand. While scrap sellers may worry that steelmaking consolidation gives the steel industry too much leverage, Parr noted that recent market troughs in pricing "are higher than earlier market peaks."

Overseas, China may also be sorting out its steel market to better match production with demand, Parr said. During March, the price of Chinese steel was closer to North American steel prices, rather than lower. "At trough prices, nobody in China was making any money," said Parr.

Europe's scrap consumption is growing, Christian Rubach of BDSV, a German scrap recycling association, said.

According to Rubach, an anticipated year of economic growth in Europe in 2006 should provide "a much better year for steel consumption," which is good news for the scrap industry since a healthy percentage of Europe's steel is made in electric are furnaces (EAFs). "I think we will see quite a strong market in Europe in 2006," said Rubach.

He said research by BDSV and Eurofer, a European steelmaking trade association, shows that "through 2013, steel scrap consumption will increase worldwide by 20 percent."

The return of steel profitability is clear to see when looking at charts from the past couple of years, according to Karlis Kirsis of consulting firm World Steel Dynamics, New York.

Kirsis said scrap supplies will remain tight in the foreseeable future. "The global supply [of scrap] may not be adequate at a reasonable price [throughout] the next decade."

Regarding the near-term, he predicted mills will pay from $225 to $270 per ton for No. 1 heavy melt this year, barring an unlikely "industry shakeout" scenario. Peak pricing may be occurring in the first two-thirds of the year, "possibly heading downward after the summer," he said.

John Carter, the CEO of Schnitzer Steel Industries Inc., Portland, Ore., also addressed attendees, saying that the scrap industry has been benefiting from "an unorganized market" in terms of pricing.

Carter saw demand for steel remaining strong in developing markets such as China and India, but cautioned, "Whenever a product gets overpriced in the market, there is a desire to find substitutes."

Rising energy costs also pose a threat, said Carter, who noted that steelmaking is growing in the Middle East because energy can be procured cheaply.

The ISRI 2006 Convention & Exhibition was the first week of April at the Mandalay Bay Resort & Casino in Las Vegas.

(Additional news about ferrous scrap, including breaking news and consuming industry reports, is available online at www.RecyclingToday.com.)