Global steel production rose by 3.5 percent to an all-time-high of 1.6 billion tons last year, but those higher figures did not translate into increased movements of steel scrap in international trade. The reason, according to industry leaders, is that leading buyers of scrap cut their imports sharply, China by 10.2 percent over 2012 and India, by more than 30 percent in the last nine month of the year even after importing record volumes of ferrous scrap in the first quarter. In fact, many in the industry describe 2013 as the worst year in recent memory. And yet, some also express optimism for the scrap trade going forward, given improving prospects for steel demand and encouraging developments with regard to threatened scrap export restrictions. Of continuing concern is global industry overcapacity which is pushing down prices and compromising profit margins. Different global regions are experiencing oversupplies and undersupplies of steel scrap. The World Steel Association is projecting global usage growth of 3.1 percent this year and 3.3 in 2015. That’s good news, according to Christian Rubach, president of the ferrous division of the Bureau of International Recycling and a senior consultant with the German-based TSR Recycling. “After three painful years, the steel industry appears to be on a slow path to recovery,” he said. But, he added, the scrap industry continues to suffer from severe margin compression and a huge overcapacity which “will remain for a long time.” “2013 was a poor year for the steel scrap industry,” said Rubach. “It will be remembered as a year of financial difficulties for our industry, and one in which the essence of free and fair trade came under multiple threat from protectionist forces.” The decline in international steel scrap shipments during 2013 is told in figures supplied by the International Stainless Steel Forum. According to those statistics, total foreign trade exports of scrap steel declined by 8.0 percent, from 5.1 billion metric tons in 2012 to 4.7 billion in 2013. And that decrease was experienced across the board. North America experienced a near-average decline of 8.3 percent. Eastern Europe, Latin America, and Africa suffered much greater declines of  21.1 percent, 22.7 percent and 60.4 percent respectively. Western Europe, the Middle East and Asia fared better than North America, with declines of  5.0 percent, 5.9 percent, and 3.7 percent. The scourge of export restrictions of scrap was felt around the world, from South Africa to Indonesia to the European Union. South Africa adopted scrap export restrictions in 2013 which required scrap dealers to first offer their wares to the domestic market at a 20 percent discount before being granted an export license. A South African court upheld that measure late last year. A locally published report from early this year indicated that neither consumers nor scrap dealers have benefited from the restrictions. A similar proposal is being discussed in the European Union. “In the EU, there was open discussion of scrap export monitoring and the mandatory certification of non-EU steel mills and foundries that receive EU scrap,” said Rubach. “These moves have been camouflaged as attempts to address environmental concerns such as carbon leakage. Yet a study showed that such moves could have the unwanted effect of damaging an industry that is already delivering a clear environmental advantage.” Scrap furnaces produce 42 percent of all EU steel production while accounting for 22 percent of the entire EU steel sector’s energy usage and 15 percent of its carbon dioxide emissions, according to Rubach.  Rubach added that there have been some “slight signs of progress” with regard to the threat of restrictions on European steel scrap exports, noting that the new president of Eurofer, the European steel association, is on record against the further regulation European scrap exports. Meanwhile, in Brazil, some steel mills are pushing for scrap export limits but the government has opted to postpone a decision on this issue. An ore export ban implemented in Indonesia, meanwhile, has helped push the market towards “a turning point.”  While sales volume and liquidity do not appear to be an issue with scrap shippers around the world, there are concerns regarding margin erosion. “This a direct result of overcapacity,” said Rubach. “This will not  change until it is utilized or rationalized.” Europe is expected to experience an oversupply of stainless steel scrap beginning in 2014. “Europe will need to export material,” said Rubach. “That is a major change from the situation that has prevailed until now.” But in the U.S., the stainless steel scrap market has witnessed a “dramatic shift” from an oversupply of scrap to a shortage “in under six months.”  “The U.S. will have a scrap import requirement going forward of approximately 12,000 tons per month,” said Rubach.  This opens up the possibility of one more of three scenarios. “Scrap formerly shipped to Asia from Rotterdam can be sent to the U.S., depending on freight cost and price,” said Rubach. “Scrap formerly flowing to Rotterdam from Canada and South America can flow instead to the U.S., again, depending on freight cost and price. U.S. mills can pay higher prices to attract scrap and U.S. mills can reduce their scrap melting ratio. The major influence on these scenarios will be the discount from primary metal offered by the world’s melters for scrap.” In the U.S., scrap flow “will be influenced by how quickly Asian mills shrink discounts in order to capture lost nickel units due to the reduced production of nickel pig iron,”  Rubach continued. “With discounts of 20 percent, there is currently ample room for upward movement, before we bump up against the alternatives” to scrap. Overall, buying activity in all areas of stainless steel is likely to continue to pick up “given the lack of any near-term negative growth signals.” “A sustained high level of activity feeds on itself,” said Rubach, “and, as market players try to get ahead of price rises, we can expect to see some further volatility.  “I don’t think there has been a more interesting time than right now,” Rubach added. “For the first time in many years, the world of metallics is realizing the impact of the scrap industry.”