Recession hits steel scrap supply in 2009, 2010

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Global scrap supply will fall in 2009 as the economic downturn hits recycling activity and next year the developed world's recovery will be key for scrap availability, the UK arm of one of the world's largest metal recyclers said on Friday.

"Over the last year, the scrap arisings in the UK and in the United States, and in fact in every Western economy has been reduced because of a global financial and confidence crisis," Graham Davy, the chief executive of the UK arm of Sims Metal Management told Reuters in an interview.

"The average person on the high street is looking for better deals. They have been very conservative on how they spend their money and that naturally has an effect on the outflow of scrap."

The global economic downturn has knocked recycling activity across the globe as people postpone the replacement of household goods and cars.

Davy did not give a figure for the fall in scrap arisings, or supply. But he said scrap consumption reached 475 million tonnes last year, when global crude steel production was at 1.329 billion tonnes. He said this year steel output was expected to be 1.175 million tonnes.

Sims Metal Management's UK arm processes over 2 million tonnes of ferrous and non-ferrous scrap metal annually, including over 400,000 tonnes of cars and other end of life vehicles.

Davy said scrap purchases from China, the world's top steel producer, had risen about five fold to around 7.6 million tonnes in the first half of this year, compared with the same period last year.

"That offsets a lot of the demise in the traditional steelmaking countries," he said, but added that for next year, the recovery in the developed world remained key for scrap.

"The scrap arisings have been driven by western economies. In 2010, we are waiting to see whether there is a pick up in those traditional Western economies," he said.

Davy said the United States, which has the largest share of global scrap arisings, was key, and grim production figures highlight poor scrap usage.

"US raw steel production to the third week of November year to date was down 41 percent compared with the previous period in 2008," he said.

Global steel prices have rebounded since mid 2009. But traders see it as a result of cost pressures -- rising iron ore and scrap prices -- rather than a pick-up in demand.

Davy declined to comment on the price outlook, but said the major theme for this year had been volatility due to increased spot buying.

"If there's a sudden increase in demand the only way to deal with it is if you've got your material around you. And if you don't have it you'll go to the market and buy spot cargoes..I think that's added to the volatility," he said.