Metallic, Prime Scrap Shortage to Persist: Goncalves

The prime scrap and metallic shortage in the US will continue over the next few years, according to Cleveland-Cliffs’ top executive.

 “Our conviction that this country’s prime scrap and metallic shortage will continue to tighten over the coming years is at the core of our strategy,” Cliffs’ chairman, president, and CEO Lourenco Goncalves said during a first quarter earnings call with investors on Tuesday, April 25.

He noted that last year’s “strange scrap movement” in the second half of the year has been proving to be an outlier, and the prime scrap market is back in a shortage position. 

“There are less than 20 million tons of annual prime scrap and metallic supply in North America currently,” Goncalves said. “And unless you are a producer of only rebar and nothing else, you need prime scrap and metallics.”

He commented that in-house production of 2 million tons of hot-briquetted iron (HBI) per year at the Cleveland-based steelmaker is an integral part of its internal supply chain. This leaves very little material for the company to sell to third parties.

“We anticipate that with the new electric-arc furnaces (EAFs) coming online, demand for prime scrap and metallics will be at 30 million tons by 2026,” Goncalves said.

He sees this leading to an uptick in imported metallics.

“The largest sources of these imports up until last year were Russia and Ukraine. More than a year after the invasion of Ukraine, that import avenue remains heavily disrupted,” Goncalves said.

As prime scrap is a byproduct of manufacturing, he sees onshoring of industry as another possible solution.

“Prime scrap supply has been shrinking in this country for over 50 years, and bringing more manufacturing back to the United States over the coming years should help alleviate the situation, but that will take time,” he said.

Goncalves said an alternative to address the scrap shortage would be additional metallics production, “but that requires iron ore.”

“As the largest producer of iron ore pellets in North America, this plays right into our favor,” he said.

When asked how the company planned to leverage its metallic position, Goncalves was frank.

“I’m very comfortable with our situation right now using our finite resources in Minnesota and Michigan for our own use,” he said, adding that Cliffs does not plan to build another HBI plant at this time.

For scrap, he said Cliffs’ Ferrous Processing and Trading (FPT) is the biggest buyer of prime scrap in the country, and Cliffs will continue to use a closed-loop strategy.

The company completed its $775-million acquisition of recycler FPT in November 2021.

“We only continue to grow FPT for ourselves as well,” Goncalves continued. 

Finally, Goncalves sees the current situation as a break from the previous dynamic that existed.

“For the majority of the last three decades, flat-rolled steel production with EAFs took advantage of cheap and plentiful prime scrap,” he noted. “This historical situation is changing fast.”

By Ethan Bernard,

The post Metallic, Prime Scrap Shortage to Persist: Goncalves appeared first on Steel Market Update.

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