At SteelOrbis' Chicago Regional event held on December 13, American Institute of International Steel (AIIS) President Dave Phelps and Philip Hoffman, Vice President of US ferrous scrap trading for Colakoglu Metalurji in Turkey and Chairman and CEO of Hoffman Iron and Steel, attempted to shed some light on the current state of the US steel and scrap markets as well as the fragile US economy.
Hoffman spoke largely on the topic of the Chinese and Turkish consumption of US scrap, as the two countries are the main influences on the US scrap export market. He explained that Chinese scrap imports are largely split between the US and Japan, and China sets a floor on global scrap prices--US scrap prices are difficult to push down below $280-$300/mt because of China. Turkey is the world's largest scrap importer, he said, with 21.5 million tons. Hoffman also commented that there are four major scrap exporters that control roughly 30 percent of international trade; there's also been a huge amount of consolidation in the US industry, and "that's not all good." During the question and answer portion, Hoffman explained that despite widespread discussion, Hurricane Sandy hitting the East Coast had a minor impact on the US scrap market, but the low water levels in the Mississippi river are influencing the market much more by putting upward pressure on US prices. Looking at the domestic market, Hoffman said that mills are holding only 30-day scrap inventories, which is adding to the market volatility. If mills would hold at least 60 days of inventory, it would substantially cut down on volatility.
Meanwhile, Dave Phelps focused on the economy and the "fiscal cliff" during his presentation. He said the "fiscal cliff" impacted the Institute for Supply Management's Purchasing Managers' Index (PMI) and the government should support pro-growth and pro-manufacturing policies, saying that "redistributing wealth won't pull us out of the recession." On the topic of income taxes, he quipped it is "undeniable that people can spend their money more efficiently than the government," and increasing tax rates is not pro-growth policy. "Both sides are right, but both sides are not equal-one is pro-growth and the other is not." Businesses need certainty, Phelps explained, and "decision-makers should put on some ‘big boy pants' and get to work." Further on the topic of taxes, Phelps said that the most recent recession destroyed a lot of the wealthiest Americans' wealth, and since the top 1 percent pays over 30 percent of income taxes, (if one wants to balance the budget or help the poor) the US needs policies that "will create more rich people," and by definition "redistribution doesn't create wealth." As for all the predictions that the US will sink back into recession-mode after the "cliff," Phelps said that's not so. After a lurch downward, he believes there are enough underlying positives to help the economy relatively quickly as there is pent up demand in a multitude of sectors.