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Steelmakers Dive Into Junk Business to Feed New Mills

American steel producers are buying up scrap companies, looking for a steady supply of raw materials from scrap cars, old pipes and manufacturing waste for new factories.

Indiana-based MetalX LLC began supplying North Star BlueScope with scrap from a yard that opened across from North Star’s plant in Delta, Ohio in early 2019. North Star agreed in November to purchase the Delta yard and the rest of the scrap steel from MetalX. processing operations in Indiana for $ 240 million. Mark Vassella, managing director of Australia-based BlueScope Steel Ltd., told employees in a Dec. 20 message that the purchase “helps strengthen North Star’s supply chain and competitiveness … by bringing in internal part of North Star’s scrap collection “.

MetalX chief executive Danny Rifkin said North Star’s scrap consumption is expected to increase as it completes the expansion of its steelmaking capacity by around 40% in 2022 to 3.3. million tons per year.

“The landscape has changed,” said Mr. Rifkin. “Companies like BlueScope are going to need to be able to cover a significant percentage of their scrap metal needs from their own sourcing. “

Record steel prices and an almost 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 flat-rolled steel fabrication capacity is expected to come on stream by the end of 2024, in addition to the 8 million tonnes already added in the past two years.

The new factories make steel by melting scrap metal or processed iron in electric furnaces, a production process that now accounts for about 70% of steel made in the United States. It is a less expensive process with reduced carbon emissions compared to making steel from molten iron ore in a coal-fired blast furnace.

Money is a sticking point in climate change negotiations around the world. As economists warn that limiting global warming to 1.5 degrees Celsius will cost far more billions of billions than expected, the WSJ is examining how the funds could be spent and who would pay. Illustration: Preston Jessee / WSJ

But the process puts more pressure on the US scrap market. Steelmakers’ scrap purchases from 2021 through October were up 17% from the same period a year earlier, according to Metal Strategies, a Pennsylvania-based consulting firm.

The average spot market price for a ton of shredded obsolete scrap, generated from abandoned cars and old appliances, ended 2021 up 26% from the end of 2020, according to World Steel Dynamics, a company in New Jersey consulting and market data. The price of top-notch scrap – clean, uncontaminated quality mostly harvested from metal stamping plants and machine shops – rose 34% in 2021 to $ 540 per tonne.

“Premium grade scrap is what will become increasingly scarce as steel mills increase the capacity of their electric furnaces,” said Philipp Englin, managing director of World Steel Dynamics.

Cleveland-Cliffs said rising prices for premium scrap metal and a largely stagnant supply in recent years prompted the company to acquire Detroit-based Ferrous Processing & Trading Co. in November. At a price of $ 775 million, it was the purchase of a most expensive junk processor in a dozen years, according to industry analysts.

Ferrous Processing, a leading premier scrap collector of auto manufacturers, operates 22 scrap metal sites in the United States and Canada, most of which are located in Southeast Michigan and Northern Ohio . The company accounts for 15% of the main U.S. market, according to Cliffs, which uses scrap metal to make stainless steel and specialty steels for electric vehicle engines and transformers.

Cliffs CEO Lourenco Gonçalves has said he expects Ferrous Processing to give Cliffs an edge in securing top-notch scrap.

“We have a big beast for Cleveland-Cliffs to get their hands on as much top-notch junk as possible,” Gonçalves told analysts shortly after the deal was announced.

Cleveland-Cliffs is the automotive industry’s largest steel supplier. Mr Gonçalves said he plans to use these sales to bolster the company’s main scrap metal supply by negotiating scrap purchase contracts with Cliffs’ automotive customers and using Ferrous as a collection and delivery agent. processing.

“We are going to recover our scrap which comes from our steel,” he said. “It’s a closed loop.”

Nucor and Steel Dynamics, which have operated scrap metal businesses for over a decade, are strengthening their own scrap collection loops as they expand steel production.

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

Grossman Iron has access to the Mississippi River, allowing Nucor to ship scrap metal to its area factories by river barge, including a factory under construction along the Ohio River in Brandenburg, Ky.

“One of the key components of scrap is the cost of where you move the scrap,” said Doug Jellison, Nucor’s executive vice president for raw materials. “Grossman is uniquely positioned to support much of our growth. “

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

Mr. Rifkin of MetalX has sold his scrap metal business OmniSource Corp. to Steel Dynamics, based in Indiana, 14 years ago in a cash and stock deal worth about $ 1 billion. He started MetalX about five years later. Now that he is selling part of that business, he has said he has no interest in re-entering the scrap market for a third time.

“The opportunities for independent scrap metal dealers are going to be more limited,” he said. “I don’t want to come back in five years and try again.”

Write to Bob Tita and [email protected]

Corrections and amplifications
North Star BlueScope Steel is increasing its steel production capacity in 2022 by approximately 40%. An earlier version of this article implied that the expansion would be completed in 2023. (Corrected January 3.)

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