Iron and Steel Scrap Accumulation and Availability As of December 31, 2009
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Iron and Steel Scrap Accumulation and Availability as of December 31, 2009 SUBMITTED TO Institute of Scrap Recycling Industries SUBMITTED BY Robert J. Damuth Principal Consultant Nathan Associates Inc. November 23, 2010 Contents Executive Summary iii 1. Introduction 1 2. Methodology 5 Basic Concepts 5 Flow of Ferrous Material 6 Flow of Methodology 8 3. Data Required by Each Step in the Methodological Flow 11 Step 1: Ferrous Material in U.S. Produced End-Use Products 11 Step 2: Net Imports of End-Use Products Containing Ferrous Material 16 Step 3: Recoverable Ferrous Material in Discarded End-Use Products 19 Step 4: National Inventory of Obsolete Ferrous Scrap 23 Step 5: Inventory by Region 24 4. Results 27 Appendix A. Aggregate Results and Underlying Calculations by Year Appendix B. Calculation of Recoverable Scrap by Industry Appendix C. Shipment Data Appendix D. Derivation of Probability Density Functions for Modeling the Useful Lives of Ferrous-Containing End-Use Products Appendix E. Trade Data Appendix F. Regional Distribution ILLUSTRATIONS Figures 1. Flow of Ferrous Material 7 Tables 1. Ferrous-Containing End-Use Product Categories 2 2. Aggregation of AISI Mill Shipments and Census Bureau Foundry Shipments into Bureau of Mines Demand Categories 14 3. Useful Lives of End-Use Products by Category (years) 21 4. Share of Generated Obsolete Ferrous Scrap that Is Not Recoverable 23 5. Proxies Used to Regionalize the National Inventory of Obsolete Ferrous Scrap 25 6. Summary of the National Inventory of Obsolete Ferrous Scrap as of December 31, 2009 28 7. Obsolete Ferrous Scrap Generated and Recoverable by End-Use Product Category, 2004-2009 (thousand tons except as noted) 29 8. Regional Distribution of the National Inventory of Obsolete Ferrous Scrap as of December 31, 2009. 29 9. Obsolete Ferrous Scrap Generated and Recoverable by End-Use Product Category (based on end-use products entering the U.S. economy before 2010), 2010-2014 (thousand tons except as noted) 30 Executive Summary During each year from 2004 through 2009, discarded end-use products contained an average of approximately 87.2 million tons1 of ferrous material of which 65 million tons were recoverable scrap and 47.5 million tons were recovered, leaving 17.5 million tons of recoverable but unrecovered scrap. After taking account of an average annual corrosion loss, 17.3 million tons were added each year to the national inventory of obsolete ferrous scrap. After aggregating annual inventory additions from 2004 through 2009 and adjusting the end- of-year 2009 inventory to take account of cumulative corrosion losses, the national inventory of obsolete ferrous scrap stood at 1.18 billion tons as of December 31, 2009. Of this total, 103.9 million tons (9 percent) accumulated in the inventory since the end of 2003. Discarded construction materials generated more recoverable obsolete ferrous scrap (33.2 percent) than any other end-use product category. Discarded automotive products, which were previously the leading source for recoverable scrap, continue to be a significant source, generating 30.4 percent of recoverable scrap generated from 2004 through 2009. Additions to the inventory occurred in all nine U.S. Census districts. From 2004 through 2009, cumulative net additions to inventory occurred mainly in the South Atlantic and Pacific districts. More than one-third (34.8 percent) occurred in these two districts combined. In contrast, New England accounted for the smallest share (4.5 percent) of the cumulative increase in inventory. We estimate that 448.7 million tons of obsolete ferrous scrap will be generated from 2010 through 2014 based on production and net imports of ferrous containing end-use products through 2009. Of this amount, 344.8 million tons will be recoverable. 1 All tonnage figures in this report are expressed as net tons. One net ton is equivalent to 2,000 pounds. 1. Introduction In 1977, Nathan Associates Inc. conducted the first study of the national inventory of obsolete ferrous scrap, where inventory was defined as “potential reserves.”2 Potential reserves are: • Quantities, either known or inferred, of ferrous material existing in discarded products, • Quantities of material in a condition allowing for immediate use, and • Quantities recoverable with the use of existing technology at prices higher than current prices, but not significantly higher. Implicit in this definition of potential reserves is recognition of a price-supply continuum. As the price of scrap increases, so too does the volume of obsolete ferrous scrap recovered from the inventory and supplied to the iron and steel industry. Nathan Associates produced five updates to its original study.3 The first and second updated inventories to December 31, 1977 and 1979, respectively, and the third refined the scrap inventory model to incorporate new information before calculating the scrap inventory as of December 31, 1981. The fourth update incorporated revisions to government published export and import data to calculate inventory as of December 31, 1983 and revised year-end 1980 and 1981 inventories. The most recent update, which was completed in 2005, calculated the inventory through December 31, 2003. In the 2005 study, we undertook a thorough analysis of changes in the production of new iron and steel, ferrous content of end-use products, and trade flows. In this update, we again analyzed each aspect of our inventory model, as well as short term changes in iron and steel and ferrous containing end-use product markets that have occurred since 2003. The most significant development since our 2005 study was the impact of the global recession on the production of iron and steel and the consumption of ferrous scrap. 2 Robert R. Nathan Associates, Inc., Iron and Steel Scrap: Its Accumulation and Availability as of December 31, 1975, Metal Scrap Research and Education Foundation, Washington, D.C., August 23, 1977. 3 Robert R. Nathan Associates, Inc., Iron and Steel Scrap: Its Accumulation and Availability Updated to December 31, 1977, 1979, 1981, 1983, and 2003 Metal Scrap Research and Education Foundation, Washington, D.C., August 25, 1978, October 10, 1980, December 23, 1982, August 1984, and July 2005 respectively. 2 • The recession that began in December 2007 has had a significant impact on the production of steel in the United States. Crude steel production decreased by 7.4 percent in 2008, and 30.4 percent in 2009, after increasing by 19.2 percent between 2004 through 2007.4 The decrease in steel production lowered domestic demand for ferrous scrap. Consumption of ferrous scrap in the United States fell by 27.3 percent in 2009.5 • Although product declined, the share of steel produced in electric arc furnaces (EAFs) has continued to increase, from 51 percent of total crude steel production in 2003 to 61.8 percent in 2009. Production of crude steel in EAFs accounted for 80 percent of total scrap consumption in 2008.6 • In our re-examination of net imports of end-use products7 containing ferrous material (Table 1), we again found the major categories to be automotive, construction materials, and industrial machinery. Table 1 Ferrous-Containing End-Use Product Categories Category Number Description 1 Agricultural machinery /a 2 Aircraft and aerospace 3 Automotive 4Construction materials 5Consumer durables 6Containers 7 Electrical machinery 8 Industrial machinery 9 Materials, not elsewhere classified (nec) 10 Mining materials 11 Oil and gas materials 12 Railroad equipment 13 Railroad rails 14 Ship building and marine equipment a. Includes agricultural machinery and other agricultural materials. SOURCE: Nathan Associates Inc. 4 Based on crude steel production figures published in 2009 Annual Statistical Report, American Iron & Steel Institute (AISI). 5 Mineral Commodity Summaries, U.S. Geological Survey, January 2010. 6 2009 Annual Statistical Report, American Iron & Steel Institute (AISI). 7 Prior to our 2005 study, our analyses considered 15 ferrous-containing end-use product categories. In our 2005 study, we combine statistics on (1) agricultural machinery and (2) other agricultural materials into the single agricultural machinery category. Hence, for this update we continue to use 14 end-use product categories. 3 In this report, we present our estimate of the inventory (potential reserves) of obsolete ferrous scrap as of December 31, 2009. Following this introduction, we discuss the basic underlying concepts relevant to our definition of inventory, describe the ferrous material flow through the economy, and present an overview of our inventory-estimating methodology (Chapter 2). We next describe the data required by our methodology, identify data sources,, and describe key components of the methodology in more detail (Chapter 3). We conclude with a presentation of our national estimate and its regional distribution (Chapter 4). Appendices contain all the underlying data and derivations necessary to replicate our analysis. 2. Methodology Basic Concepts Inventory, in the normal business sense, implies a stock of on-the-shelf items that can be put into use at a chosen moment depending on demand. The “on-the-shelf” aspect of this definition is not appropriate for measuring the inventory of obsolete ferrous scrap. For obsolete ferrous scrap, a more relevant definition of inventory can be formulated using the geologic concepts of resources and reserves. Resources are concentrations of natural deposits of elements in the earth’s crust or under the sea existing in such a form that they can be extracted and used. Reserves are a subset of resources. Reserves consist of the natural deposits of elements whose extent and grade are known to a greater or lesser degree and whose physical natures are such that they may be extracted at a profit with existing technology at current prices. However, these geologic concepts are not precisely applicable to ferrous scrap. The geologic definitions are relevant to natural deposits of elements that are presumed to exist but must be discovered in their geologic setting; measured as “proved” in terms of composition, grade, and quantity; and then recovered for current or future use or abandoned.