The Effort Is Worth It – Construction & Demolition Recycling
As the United States and many other parts of the world rebounded from the severe COVID-19 restrictions imposed in the spring of 2020, steel and scrap prices have rebounded and held on to those gains.
For building contractors, soaring costs (and sometimes uneven availability) of steel have sometimes been a burden. For demolition contractors, on the other hand, the higher scale prices of scrap metal have generated bidding opportunities and additional income.
History has shown that high scrap metal prices will eventually drop or even collapse, but the first eight months of 2021 have been good news for scrap metal producers and sellers.
A tip with endurance
In early August, steel mills in the Midwest were purchasing No.1 heavy-smelted ferrous (HMS) scrap for $ 455 a tonne, according to survey prices collected by AMM fast markets. Data collected by this publication and by the Raw Material Data Aggregation Service (RMDAS) of Pittsburgh-based Management Science Associates demonstrates the continued strength of the scrap metal market in 2021.
Last August, as the U.S. economy struggled to recover from the restrictions linked to the pandemic, the RMDAS set the price of HMS No.1 at $ 226 per tonne. The HMS is usually the closest to the sheet metal and structural grade (P&S) price paid by recyclers for scrap and steel loads leaving demolition sites.
Prices for HMS and P&S have risen several times since and have rarely declined. According to RMDAS, factories paid an average of $ 270 per tonne last November, $ 429 per tonne in January and $ 477 per tonne in June.
While scale prices are lower than these to give processors a margin, the positive trend has made a difference in demolition bids and work planning.
Last March, a local media report from Youngstown, Ohio, indicated that the city would pay less than expected to demolish a bridge thanks to the steel content of the aging structure combined with the high-value scrap market.
An online report from Youngstown’s The Vindicator The newspaper said the three bids Youngstown received to demolish a 78-foot steel girder bridge over an abandoned railway right-of-way were “considerably less than the city’s estimate” for the project.
A deputy director of public works, quoted by the newspaper, is said to have said: “There is so much steel on the bridge, which has contributed to the estimate being high. We are careful with the salvage value of steel.
While the city estimated that it would receive bids in the order of $ 950,000, the three bids received were instead between $ 580,000 and $ 650,000.
The potential for increased activity is half the good news for demonstrating entrepreneurs in a bull market for scrap metal, the other is increasing revenues per tonne of scrap metal hauled over the scale at a facility. treatment.
Commodities analysts and economists in general can still find cause for concern, with inflation and the COVID-19 Delta variant topping the list in mid-August.
The fundamentals of the US and global steel industry at the same time, however, appear solid. In the supply and demand driven scrap market, this is a critical part of the equation.
Statistics collected by the Washington-based American Iron and Steel Institute (AISI) showed that by the end of the week ending July 24, steel production in the United States had exceeded 52.6 million tonnes , an increase of 18.4% compared to the 44.5 million tonnes manufactured. in furnaces and foundries in the first six and a half months of 2020.
AISI said the capacity utilization rate (capacity) of factories in the United States at the end of July had reached 84.6%. The weekly figure for July 2021 represents an increase of 38.4% from production of just 1.35 million tonnes in the same week in 2020, when the ovens were operating at 60.3% of their capacity in the middle. of an economy affected by COVID-19.
Globally, up to June, crude steel production for the 64 countries under the Brussels-based Worldsteel Association had amassed more than one million metric tonnes. This represents an increase of 14.4% compared to the amount of steel produced in the first half of 2020.
Global production in June increased by 11.6% compared to June 2020. Steel production in Europe, the Americas and Africa in June 2021 increased from 35 to 51% compared to June 2020, when restrictions in many countries were just starting to lift.
So far this year, Turkish steelmakers have produced 19.7% more steel than in the first half of 2020, while Indian steelmakers have produced 31.3% more. Both countries provide stable export markets for US scrap converters.
Despite the bullish summer market, the volatility of scrap prices is a matter of “when”, not “if”. This prompts proponents of metal price hedging to urge companies that produce, sell and buy scrap ferrous to consider hedging options that have long been used in the copper and aluminum markets.
Cover your bets
Several contracts in place with Comex in the United States and the London Metal Exchange (LME) in the United Kingdom allow scrap sellers and buyers to hedge, or set a floor and ceiling price, on the scrap they manipulate.
Adam Jackson of Texas-based Aegis Hedging worked to help this company convince potential clients, including contractors involved in large-scale industrial demolition projects, to consider the merits of managing their risk by covering a percentage of the scrap they handle.
Jackson’s message to these demo entrepreneurs: “Scrap metal prices are still historically high, and you can lock in those profit margins now. He adds, “Even if metal prices fall from these historic levels, you can sleep better at night knowing your hedges are working. ”
Aegis is one of the companies “eager to help scrap participants learn the intricacies of metal hedging,” says Jackson. He acknowledges that hedging may seem mysterious to the uninitiated, but adds, “Hedging with financial instruments does not change the physical transaction in any way. Your hedges work as a complement to the transaction you have executed in the physical market. There is also no change in the billing and collection process.
There is an additional process for organizing a hedge, which Jackson says companies like Aegis are equipped to handle. “We also come across some misconceptions about financial coverage,” he continues. “Hedging, by definition, is the opposite of speculation and is not as complicated as it first appears. ”
Avoiding risk is the central goal of hedging and can generate huge benefits when a commodity market turns, Jackson says. “If you are bidding on a project based on the current scrap market, the scrap revenue becomes ‘at risk’ as soon as the contract is signed,” he comments.
Jackson continues, “Ideally you should have your roofing program in place as a project moves from planning to completion. The administrative elements and structure of the hedging program must be defined and implemented to ensure that you can act quickly in rapidly changing markets.
The extra office work can be worth it, he adds. “Putting together an appropriate hedge portfolio is not as daunting as it sounds. There are different contracts on several exchanges that can be considered for coverage. The key is to understand the advantages and limitations of each product and to design a hedging program that meets your company’s unique risk tolerance.
On the benefit side, “the hedging makes the revenue or cost of the metal predictable, rather than random,” Jackson says. “Hedging, at its core, strives to eliminate or reduce the risk that market prices will behave negatively for your physical commodity contracts. Financial hedging adds tools to a company’s toolbox that cannot always be obtained in physical markets. Hedging and appropriately managing price risk enables an organization to quantify potential risks and reduce the likelihood of negative outcomes.