During Portland, Oregon-based steelmaker and steel recycling company Schnitzer Steel Industries' quarterly conference call Monday, Tamara Lundgren, President and CEO, explained that in the company's fiscal first quarter 2012, ended November 30, 2011, there was an interruption in global buying patterns for scrap for about three weeks because of heightened concerns that another economic depression was looming. When buying activity did resume, she said, it resumed at significantly lower prices. The suspension of buying was surprising for Schnitzer, and Lundgren noted that "we haven't seen this type of buyer uncertainty since 2008."
Nonetheless, scrap demand and prices both rebounded in December for January shipments and Lundgren said Schnitzer anticipates they will remain steady for the balance of Q2 2012 as there are indications of a more pronounced upside as the market gains momentum.
During the question-and-answer portion of the conference call, Lundgren addressed the scrap situation in China. China likely has low scrap inventories now as the Chinese New Year approaches, however throughout the next couple months Chinese mills will likely replenish its inventory levels, she said.
As for the US market, the end of fiscal 2011 had a few very stable months of scrap prices and increases the last couple months according to Lundgren; however, the US market but has seen some recent softening because of better scrap flow as well as better than expected weather conditions. Additionally, there is an overhang of pig iron in the US market, as well as some European imports, primarily of busheling scrap, that are affecting prices in the US market. The stronger dollar is attracting increased scrap imports from Europe, but Lundgren explained that Europe cannot provide the quantity, or quality, of scrap the US market needs.
Total ferrous scrap sales volumes were 1.2 million tons in Q1 for Schnitzer, in line with Q1 2011 but down from the prior two quarters because of deteriorating market conditions in Q1 2012. Export customers accounted for 74 percent of total ferrous sales volumes.
In Q1 2012, Schnitzer recorded net income of $7.018 million, a significant drop for Q1 2011 income of $17.8 million.