Network Metals LLC

Steel scrap market: We spoke last week about how GM’s bankruptcy would ease suppliers’ concerns about getting paid promptly for materials. However, the closing of at least 12 domestic GM plants is going to have a more significant negative impact on scrap in the short term. Scrap coming out of stamping and manufacturing facilities is some of the cleanest scrap in the US, and these GM closures are really going to tighten up that market. For example, Nucor (NYSE:NUE) and SDI (NASDAQ:STLD) use scrap as their primary raw materials, and with less scrap being generated they are going to see higher prices for raw materials. However, Nucor and SDI have a distinct advantage over other mini-mills, since they have secured their scrap supply by purchasing the recycling companies David Joseph Company and OmniSource Corp. It's the smaller mills that will have to fight for scrap. We will be continuously updating you on the developments in the steel scrap market.

FYI, based on our direct conversations with Omni and DJJ, scrap is still very tight even before the GM shutdown due to lack of scrap generation during this recession. So far this year Omni's collection of ferrous scrap is down 45% and nonferrous down 30%.