Stormy weather: U.S. hurricanes and China's economy exert pressure on ferrous scrap markets.

The back-to-back whammies of Hurricane Katrina Aug. 29 followed by Hurricane Rita almost a month later threw much of the Southern economy and infrastructure into a tailspin.

Ferrous scrap was no different. Nothing moved by river or Gulf, and markets felt the impact. Short-term effects were felt on traffic moving up- and down-river. Yet some observers caution against getting too carried away by the storms.

Not far from the heart of it all was Manny Bodner of Bodner Metal & Iron, Houston. "There are parts that already are back to normal," he reported at the first of October. "And there are parts so devastated that it may be years before they get to full production." He notes that the situation goes well beyond scrap metal.

SHIFTING LANDSCAPE. "It's more than [the ferrous markets]," he says. "It's the vibrancy of the cities. If there are no people, there can be no business." Bodner cites the case of some personal friends who left the Gulf region and decided not to return. "Theirs is not an isolated case," he says.

Bodner says there are dislocations in transportation, energy and people. Computer systems were also lost.

"It is a disruption of the collection system more than anything else," says Rob Bakotich, vice president of sales and marketing for Ferrous Processing & Trading Co. (FPT), Detroit. Not everyone got crushed. In fact, one major customer--the Ipsco mill in Mobile, Ala.--was running just two days after Katrina came through. "They were asking for prompt shipment of their orders," he says, admitting that FPT was surprised the mill could get power back that fast.

"Some mills were affected, but none dramatically," Bakotich continues.

A drop in prices, which most observers feel is a short-term anomaly, took ferrous down $30 to $40. It will not be too long before those same mills are pumping out all of the corrugated sheet, re-bar, I-beams and other rebuilding supplies they can make.

While shipping was disrupted, recyclers outside the immediate region were more likely affected by oil refining capacity damage. "We did not have any problem with shipping. But the fuel cost was a factor," says Ray Six, Six Recycling, East Liverpool, Ohio. Like everyone else, his ton-per-mile costs jumped.

"Scrap flow was disrupted," Bakotich says. There was uncertainty over from whom mills could buy and whether they would be able to get orders filled. Some barges were wrecked, lost or sunk. Mills in the Midwest were concerned about getting shipments of pig iron via the barge system.

For about two weeks, the Port of New Orleans did not work any cargo ships. However, by Sept. 12 commercial barge movement re-started. At the Port's Louisiana Avenue Complex, Coastal Cargo placed steel coils on a barge headed for an Alabama auto manufacturing plant.

Two days later the Lykes Flyer, docked at the Napoleon Avenue Container Terminal, was ready to move out. These were early beacons of light for longshoremen and for those watching the finished steel and scrap markets.

As the damage from the hurricanes is sorted out, a second flood--of recyclable materials, including a huge quantity of ferrous scrap--will likely occur. How much of the scrap mixed into general rubble will get to the scrap market and how much will be landfilled or otherwise buried remains unanswered.

Short-term, business was interrupted. Human lives were disrupted ... many workers simply had other concerns rather than buying and selling, hauling scrap or collecting material.

"It will not take years to clean up," Bodner says. "No business will survive if it does."

He adds, "We will survive. Will we be back next week? I doubt it. But will it take two years? I doubt that, too."

SHIPPING CHALLENGES. There will be short-term displacement. "I don't see any big, lasting effect," says Alan Ramer, Metal Management-Northeast, Newark, N.J. "The effect of the hurricanes will be felt over a period of months, if not years."

He expects most of the troubles to come with the transportation infrastructure. "It will take time to mobilize resources," Ratner says.

In the short run, the storms definitely disrupted shipping on the Ohio River. The Port of New Orleans is moving only a fraction of what it normally would at this time. Port authorities hope to be above 80 percent of normal by March 2006. Trucking was often diverted to more pressing uses.

Even away from the river, there were dislocations. In Kansas City, companies like Galamba Metals Group had problems when many of the truckers heard tales of FEMA paying $2 to $5 per mile for trucks. "We're not sure if it's tales told over the CB, but a lot of truckers who usually haul scrap into Kansas City have left our area and haven't been back," says Galamba's Raynard Brown.

Still, he sees improved flow into the fall months as the prices increase from the summer slump. "Our suppliers have been trained to deal with the wild markets and know if they hold, the price will rebound," Brown says. "The market is used to it."

Howard Lincoln, Lincoln Metal Processing, looks for the drop in prices to correct quickly and sees a good year in 2006. Even though his Erie and Meadville, Pa., facilities are miles from the hurricane centers, he expects a ripple effect from the repair demands. "They've lost thousands of cars, houses, buildings. We'll be rebuilding for some time. I think those storms will add a point to the Gross National Product."

In his 35 years in the scrap metal business, Lincoln has seen many ups and downs. "We won't see any [price] collapse for at least the next one or two years," he predicts.

Lincoln expects the current price squeeze to be over by Thanksgiving. "Most mills have a two-day supply on hand," he says. While they are shipping just-in-time, they cannot go without ordering regularly.

"We've been just as busy as ever," Six says of his September. He expected prices to peak and to drop to more normal levels through October.

Still, he is sure the hurricanes will affect the domestic scrap market. "I don't think the price will hold up through the end of 2005," Six says. He says that a lot of scrap will be taken out of the battered areas and that it will be some time before the markets will be able to digest that amount of tonnage.

"I think the recovery efforts might flood the market. I think it could shove the prices down for a while," SIX continues. However, longer term he sees strong demand, especially if the government makes a sincere commitment to rebuilding destroyed communities.

Still, SIX figures that it will be well into 2007 before things return to status quo.

CHINA REMAINS A FORCE. The world's steelmakers now produce 1 billion tons of steel annually. That figure is more likely to grow than it is to shrink in the near future.

China is responsible for 30 percent of that output, roaring along at 300 million tons per year. That makes China the world's top steel producer, buying scrap to fill its hungry furnaces.

The wild card in this game is how long the Chinese will continue to buy. While it is hard to imagine them simply dampening production, it is not totally unprecedented.

"Things have evened out somewhat after Chinas rather bold entry into the market (about 18 months ago)," says Ratner. For about a year, the Chinese were in the ferrous market in a big way, then out almost totally, then back in again.

Lincoln says Turkey dropped its prices at the end of September by $20 to $30 per ton. "What happens," he says, is that "when the price drops both China and Turkey jump in and eat up the supply," Lincoln remarks.

"Over the last few months they have managed their business in a reasonable fashion," Ramer says. "Recently they have been steady buyers without any volatility."

A NEW YEAR. Bakotich sees no long-term price drop. "The cost of shredder feed will adjust to the number of tons on the market," he says. Noting that one estimate predicts the scrapping of at least 100,000 cars, he says the New Orleans area is only part of the overall market. Even with increased volume, it will not be a burden on prices.

Brown is not so sure a massive wave of flood-ruined cars will come through scrap yards. He notes that most people who had cars used them to drive out of the storms' paths. "The people who were left did not have cars--that's why they were left behind," he says.

Time is another factor that will smooth any bumps in the auto scrap market. Scrapped cars will not hit the market all at once.

"We don't see any massive drop in scrap prices," Bakotich says. "It will take a long time to tow, log in, crush, clean and shred those cars."

Meanwhile, much of the country will go into winter weather mode. In normal times, shredder feed becomes more difficult to find. Although Bakotich anticipated the price drop in October, he says he expects an upward adjustment.

Bodner fully expects short-term fluctuations. "You will see material coming in (from the cleanup), but it will be local," he says. He says he expects many short-term miscalculations, but that "it will all work out in an appropriate manner."

Ramer says he expects continued ups-and-downs. "Markets will show unusual volatility," he says. "But demand will remain steady."

Bakotich agrees. "2006 will be decent for the steel business. We are on a good cycle. Order books are good. We are optimistic.

Lincoln sees another bullish sign. He says a lot of the little machine shops in his area are busy. "Places where we used to pick up once a month, we're now visiting twice a month." While the owners do not have big backlogs, business is steady. Still, shop owners are reluctant to hire. As a result, employees are getting overtime, but the unemployment figures look stagnant, Lincoln says.

On the sell side, Brown has a different strategy: waiting for the first of the month to roll around and seeing what it brings. "Mills are a mixed bag of strength and weakness," he says.

Still, he feels that the market will remain steady, overall, through the first quarter of 2006.

While material is flowing, Lincoln says he would like to see more peddler scrap moving. Still, the market looks very good to him. "We are busy. Right now, if the price stays in the same area, we'll be happy," he says.

The author is a Recycling Today contributing editor based in Cleveland. He can be reached at [e-mail].