This past winter will go down in the books as an unusually warm cold season that caught the scrap industry by surprise. Relatively few inches of snow on the ground meant a steady flow of obsolete scrap, both ferrous and nonferrous, thereby altering typical seasonal trends of stronger pricing as supply tightens.
The warmth-induced scrap flows prompted a hurried recalculation of some pricing and purchase orders. Like the weather gurus, scrap gurus had to make peace with not knowing what the next month, or next week, would bring. Historic data couldn’t play the willing supporter of any trend-based position as long as the weather played peek-a-boo.
But the ripple that healthy obsolete grade flows sent through the ferrous scrap industry paled in comparison with the jarring jolt it received when bulk pig iron imports flooded the market in January and February: a proper, three-bulk-cargo jolt that sent prime grades scurrying for insulation. Pig iron imports soon joined warm winter on the list of “things I didn’t expect” in the first quarter. Some, consumers and dealers alike, called it a cunning move to put a check on prime scrap prices. Others, like large-volume brokers and sellers of prime scrap, weren’t so forthcoming with accolades. That currency changes allowed other substitutes to enter the market didn’t help those reliant on prime scrap sales.
“We got hit hard due to the mild weather and a large steelmaker importing three cargoes of pig iron through New Orleans. They sold what they didn’t need. It was cheap Russian imports that came in scattered over the winter months. They bought Russian and Ukrainian cargoes at prices ranging from $440 to $448 per tonne c.f.r. New Orleans,” one source said. “What they didn’t need they offered to several mills with pig iron RFQs (request for quotations). They left $15 or $20 per tonne at the table when closing those deals. That got in the way of a lot of plans that some scrap guys had. So it’s been a different market because of the irregularities. It’s become a casino now.”
To compound sellers’ woes, when Brazil’s currency lost value vs. the U.S. dollar, more substitutes made their way to the domestic market from Brazil.
“School was out at that point,” a second source said. “We were trying to compete with the imports and by March we still had unsold prime scrap on the ground.”
And it could have been a lot worse—or a lot better, depending on which side of the transaction you were on. By March, steel mills renewed their dislike for export markets when strong offshore demand refused to let scrap prices sink into nothingness.
After negotiating a $20 increase to $520 per gross ton for No. 1 busheling in Chicago in January, news of January’s pig iron imports and February’s imminent deliveries allowed buyers to force a $45 drop to $475 per ton in February. And that was just for the few that brokered early deals; spot prices for much smaller tonnages fell after the first 12 days of February, with sellers fearing the worst was yet to come, sources said.
Turkey had different ideas. By the third week of February, Turkish mills took in about a dozen bulk shipments. By the end of the month, AMM had confirmed 18 bulk cargo sales. The resurgent export demand kept cut grades and shredded steel scrap prices steady, evidenced in March when they trended sideways or even up a few dollars in some markets while prime grades dropped a further $10 to $12 per ton across the country.
The relatively smaller tonnages of prime scrap (compared with shredded and obsolete grades) that found their way into bulk vessels headed for Turkish shores was enough to keep the floor from falling on domestic prime prices, according to some sources.
“Export markets kept domestic prices honest in March. There is a lot of pressure on the U.S. scrap market from exporters. Any time domestic mills try to drop prices by $30 per ton or more, they get a big backlash. It happened this winter,” a third source said.
Much like the weather, few can predict how prices will trend in the coming months, or what further surprises mills have in store for 2012. But sellers have found some comfort in knowing that whether domestic or export, when extremes hit they’ve got one of the two to fall back on. All things being fair, consumers should have their own fallbacks to check extreme price increases. Earlier this year, they found it in cheap raw material imports. Are there others?