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Nicholas Tolomeo



Articles by Nicholas Tolomeo

‘September US scrap collapses to sideways’: How can this be?

September 15, 2017

In 1968 there was an American college football game between two Ivy League schools, Harvard and Yale. Harvard, an underdog entering the game, scored 16 points in the final 42 seconds to miraculously tie Yale 29-29.
The following day, the Harvard Crimson student newspaper ran the now famous headline “Harvard Beats Yale 29-29.”
I could not help but recall the game and the headline as I surveyed the scene around the hotel lobby at the recent annual ISRI Commodities Roundtable Forum in Chicago.
Stunned scrap dealers did not know what had just hit them. They were wandering around like they had just blown a 16-point lead in 42 seconds.
Expectations of $20-$40/lt price increases for ferrous scrap on September 5, had given way to reality on September 7, unchanged pricing.
In this case the scrap

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How does steel scrap fit into a larger recycling picture?

February 10, 2017

Comparing countries based on specific criteria is one of the most interesting and revealing ways to learn about the world. Some demographic information is well known, like China having the largest population (1.37 billion people) and Russia being the largest country (17 million square kilometers). Others reveal drastic discrepancies like the life expectancy in Monaco (89.5 years) compared to that of Chad (50.2 years) or the number of airports in the US (13,513), way ahead of No. 2 Brazil (4,093).
That information comes from The World Factbook, a reference resource published by the US Central Intelligence Agency.
There are other organizations and publications that provide more niche-oriented data. One that caught my eye recently was country-by-country recycling rates listed by the Organization for Economic Co-Operation and Development. The OECD has 35 member countries and tracks, among other things, municipal waste recycling rates.
The totals do not include metal recycling, but there could be some parallels between municipal recycling tendencies and what ferrous scrap market players have come to know about country-specific scrap usage.
The human element of the scrap industry is one that has been talked about before in this space and one that makes the scrap market one of the most unique commodity markets in the world.

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Steel slowdown curbs scrap enthusiasm in US

September 16, 2016

An American scrap trader was cleaning out his garage earlier this summer. He came across an old grill that he decided to throw out. He wheeled the grill with all its steel components to the curb on that Sunday afternoon. When the trader left for work Monday morning he was surprised to see the grill was still there. When he returned from work Monday evening the grill remained at the curb.
Garbage collection in the neighborhood was not until Wednesday morning but surely a scrap peddler would be making the rounds and collecting steel-intensive items like grills that could fetch them money at the local scrap yard, which in turn would process it and sell it to a steel mill to be remelted.
Nobody ever came for the grill until the garbage men took it after three lonely days. Its value at the scrap yard had likely only fallen a few dollars from more bullish times a few years ago. But this was not about one grill or a few dollars. This was just another sign of the de-incentivized scrap peddler base.
It wasn’t that no active peddler took the time to pull over and load up the grill, it was that there were no peddlers eager to gas up their trucks and make the rounds in the first place. If this grill was left hanging, presumably so were washers and dryers and other consumer goods at the end of their life that make up the US obsolete scrap reservoir.

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Move over, Optimus Prime: The optimizer is a scrappy competitor

August 17, 2016

The unique nature of the US ferrous scrap trade makes for some tense moments and critical decisions. A steel mill’s entire month of scrap requirements are generally priced and purchased in as little as a few days, if not a few hours. Buyers have precious little time to decide what grades of scrap make sense at what prices.
Enter the optimizer.
The computer program is used by a mill’s scrap buyer when he takes his grocery list of ferrous needs to the store (aka the scrap market). The buyer enters as much information as possible and the optimizer tells him the best mix of scrap grades to buy. It’s an overlooked technology in the steel industry, which is otherwise teeming with technological solutions.
“Basically it looks to meet chemistry requirements the cheapest way possible,” one scrap buyer explained. Some mills use tried-and-true formulas, other optimizers are internally developed. “Some are far more sophisticated than others.”
There are a lot of variables to consider month-to-month when it comes to buying scrap. For example, heavy melting scrap takes longer to melt than No. 1 busheling scrap. The longer it takes, the more energy is consumed. Energy rates also fluctuate. The optimizer takes all this into account.
Mill order books for finished steel also fluctuate.

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Memories from the (ferrous) scrap heap of history

July 29, 2016

We all remember where we were on Sept. 11, 2001. Others are old enough to remember where they were when JFK was shot. These and other historical events changed the world.
Those involved in the commodity markets can’t help but also recall what the events meant for their markets. Whether they were a buyer, seller, trader, broker or agent, they remember where they were and what the market did.
Did they go long, did they go short, did they do nothing at all?
The coup attempt in Turkey earlier this month failed, but it got some industry veterans to jog their memories of other historic events. In this and future blog posts, we will look back at market-shifting moments, from dramatic changes in governments to natural disasters, terrorist attacks, declarations of war, invasions and economic booms and collapses.
Much like we just witnessed in Turkey, coup attempts began to unravel and ultimately seal the fate of the Soviet Union and related communist systems. Scrap industry veteran Nathan Fruchter, president of Idoru Recycling Corp., recounted three such pivotal moments in the Fall of Communism through the eyes of a scrap trader.

 
The Berlin Wall comes down: Nov. 9, 1989
The event: On November 9, 1989 the head of the East German Communist Party announced that citizens of the German Democratic Republic (GDR or East Germany) were permitted to cross the border into West Germany.

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Turkey coup close call a near black swan Black Friday for scrap market

July 20, 2016

Most predictions come with a disclaimer that if some rare, high-profile, unforeseen event were to occur, all bets are off. Usually that disclaimer is unwritten. Sometimes it is written.
Last Thursday a US ferrous scrap exporter was providing a routine market outlook and in an e-mail exchange concluded he was “confident we’ve found the bottom of this market for now (barring any black swan events).”
Popularized by author (and former derivatives trader) Nassim Nicholas Taleb, a black swan event is one that is unpredictable and could have catastrophic ramifications.
As chance would have it, 28 hours after the black swan disclaimer in my e-mail exchange, news of a potential black swan landing was unraveling across social media and cable news outlets as a coup d’état attempt was underway in Turkey.
There were certainly moments of unease amongst a US scrap supplier base that has grown so reliant on the country of 75 million sandwiched between Eastern Europe and Western Asia.
Upon hearing the news and seeing the images I recalled the Thursday e-mailer and his disclaimer. I immediately reached out to the scrap exporter/commentator who was surely having one of those “sometimes I hate being right” moments.
He fired back with a three-letter acronym we’ll assume meant Cover Yourself Always. “Nothing is ever for sure,” he concluded.
By now we all know what happened.

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US steel scrap export drought, rains on pricing parade

June 23, 2016

Steel scrap is an incredibly unique commodity.
We all have an impact on the demand side of commodities, whether you are building a house, filling up your gas tank or shopping at the grocery store.
When it comes to scrap, almost every person on earth can say they also have an impact on the supply side.
How many people can say that about oil? About coffee? About natural gas, gold, wheat, cotton, corn, sugar? You get the point.
When you retire your vehicle to buy a new car, discard an old washer, recycle a beer can, you are adding to the worldwide scrap reservoir.
And because of the incredibly fragmented, long-winding scrap supply chain, we often overcomplicate things when trying to quantify the current supply situation.
Just about every single possible weather condition comes with some perceived psychological impact on scrap supply.
Too cold, scrap won’t flow. Spring thaw, scrap coming out of the woodwork. Too hot, scrap won’t flow. And on and on we go.
I was in New York last week for the observance of Steel Week and it was hot. I’m in Houston this week and it is even hotter.
Steel mills in the US are running at about 75% capability utilization. Not bad. Electric-arc furnace flat-roll mills that gobble up much of the scrap here in the US are running even better.

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US steel scrap falters, but mills returning to market could create a floor

May 20, 2016

It may not seem like it, but the US domestic ferrous scrap industry is in the midst of one of the biggest bull markets this decade.
Scrap prices trended up $25/lt during the March buy week, up $50/lt during the April buy week and up $20/lt during the May buy week.
That is three consecutive up markets–the first time that has happened since 2010. Four consecutive up markets has yet to happen in the 2010s. Nobody seems to be betting on that drought coming to an end as export pressures cloud the June outlook.
It was actually an export sale that helped ignite the May scrap market, firm prices and get some mills off the sideline. On May 4 a US bulk shipper achieved $330/mt CFR Turkey HMS 80:20 basis on a sale to Turkey. The sale was a coup for the exporter, having achieved a $17.50/mt premium over the prior US bulk sale and a $50/mt premium over its own previous sale from four weeks prior.
That bulk export sale enticed at least one mill buyer to return to his office, delay Cinco de Mayo festivities, and begin purchasing May scrap before more bulk sales followed.
Those sales still have not materialized. It has officially been two weeks since that bulk sale and not another US-Turkey deal has been made.
Live by the export, die by the export. US scrap suppliers lived by it during the bull markets of March, April and May.

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US ferrous scrap market players take a gamble on April’s prices

April 14, 2016

Every other April, ferrous scrap dealers descend upon Las Vegas for the annual Institute of Scrap Recycling Industries (ISRI) convention, held there every two years.
With the event held at Mandalay Bay Resort and Casino this year, there were numerous nearby opportunities for convention-goers to gamble. Roulette wheels, blackjack tables and sports books where the NCAA Basketball and Master’s Golf Tournament broadcasts were being shown, were all within earshot of the convention hall.
Before even touching down at McCarran International Airport, five miles south of the glittering Vegas strip, many scrap dealers had already placed their first bets.
Those scrap dealers were betting on the market, which lately would be the equivalent of betting on the forsaken Cleveland Browns in American football or the woeful Aston Villa team in European football — which is to say, your chances are not very good.
However, the US scrap buy week, typically the first week of each month, was shaping up differently for April. The US scrap supply chain had been recently beaten down from consistently low prices, to the point where the volume flow had become a trickle.
And suddenly, mills had healthy April scrap wish lists, bolstered by higher finished steel prices in the wake of import-limiting unfair trade cases and improving order books.
The convention was scheduled to begin April 2.

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US steel scrap dealers eke out a March Market Madness victory

March 9, 2016

For US scrap dealers, March came in like a bull. Prices moved up $10, $15, $20/lt, and even more in some cases. It had been awhile since US scrap dealers had the sort of leverage they did during the March buy week.
If we consider each buy week a battle between dealers and mill buyers, then the dealers’ record in 2015 was 2-8-2.
To put in March Madness terms, each month scrap suppliers entered the buy week as a No. 14 seed facing a No. 3 seed (also known as the mill buyers).
This was hardly the fault of the scrap suppliers. There wasn’t much scrap supply needed as steel mills dealt with myriad obstacles when it came to selling their products. And the little demand for scrap that existed was sometimes filled by scrap flooding in from Canada, the East Coast and even Europe.
But things were different in March.
First, let’s back up for a minute. In what may seem like an odd business model, many of the scrap-intensive electric arc furnaces in the United States are not near large reservoirs of scrap.
Many were built in the South in the middle of the 20th century when scrap was easily available and cheap. They took advantage of attractive energy deals from local counties and access to cheaper labor than in the North.
Others had the same idea. Minimills proliferated and, of course, began to chase the same scrap metal, driving the price up.

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US scrap industry returns to an event where many were queasy last year

February 9, 2016

An annual scrap industry event in St. Louis every February has grown in mass and scale over the past decades. Once a regional chapter dinner, it is now a full-scale party that attracts scrap dealers and mill buyers from across the country.
ISRI’s Mid-American Consumers Night banquet on Tuesday evening is the main event, but meetings begin as early as breakfast on Monday. Industry friends begin gathering in the Union Station Hotel lobby well before the start of the banquet, and this year’s event brings back memories of last year, when scrap suppliers were reeling from a February price crash that finalized just days earlier.
The annual open-bar themed banquet rages all night with drinks, food, entertainment, drinks, music, and more drinks. Needless to say some attendees head for the airport Wednesday morning bleary eyed.
At last year’s 68th annual Consumers Night, scrap dealers showed up to the event bleary eyed, having landed in St. Louis looking like they had just seen a ghost. What they had really seen was a $100/lt price plunge, the likes of which had not been experienced this decade.
There was shock, disbelief, and a certain numbness among the dealer base at the event.
Looking back at my coverage a year ago, the first sign of the February price crash were evident in a story published Jan. 19. The headline read “Weak fundamentals undercut US scrap prices.

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