The past 18 months or so have shown just how important exports are to the health of the U.S. ferrous scrap industry.
Export volumes last year fell to a two-year low and have been somewhat sluggish so far in 2013, while prices have dropped about 28 percent since January 2012 through May of this year. So whats to be expected for the rest of this year? The question is directly related to the fate of domestic scrap prices.
Increases in domestic scrap values have mirrored the rise in the average price of exported scrap over the past decade or so. Talk to just about anybody in the ferrous scrap business in North America and youll hear pretty much the same refrain: The strength of the market going into summer is going to depend pretty much on exports.
The most recent export numbers hold both good news and bad news for scrap buyers, brokers and dealers.
The good news is that March 2013 was the strongest month since last August, with 1.96 million tonnes of ferrous scrap shipped offshore, putting the year-to-date total virtually even with the first three months of last year, according to the latest data from the U.S. Commerce Department.
The bad news is that the 21.36-million-tonne export total in 2012 was nearly 3 million tonnes below overseas shipments in 2011.
The other piece of bad news in the export business is that China has yet to regain the strength it showed in 2010 and 2011. China took 546,549 tonnes of ferrous scrap from the United States in the first three months of this year, down 18 percent from 666,245 tonnes in the same period in 2012 and 42.7 percent below 954,288 tonnes in the first quarter of 2011.
Much of that slack has been taken up by Turkey, which purchased 1.64 million tonnes of ferrous scrap from U.S. suppliers in the first quarter, up 7.2 percent from a year earlier.
These trends have been among the leading indicators for the domestic ferrous scrap market over the past few months. The price declines that came in April and May followed weaker export pricing. When prices fell slightly across the country in February, a major contributing factor was the continued indeterminate nature of the ferrous scrap export market in both tonnage and dollar value. In fact, as deals were being closed during the first two weeks of February, there was a major question on the minds of many market players: When will truly stronger and lasting export demand and pricing return?
Prices are driven by foreign demand, and that demand historically has been driven by when and how Turkey and China decide to participate in the market. Turkey has a history of monitoring the U.S. scrap market and swooping in to make buys when prices are on the decline. This scenario played out in February 2010 and February 2011; as prices fell domestically, Turkey and even China picked up their buying programs heading into March of those years. But there was no such bounce this March.
Going back a bit further, ahead of both December and January many market players anticipated increases in the value of scrap, only to find prices sideways or up only slightly in certain regions. February took that trend to new market lows.
In mid-January, many in the market believed that February would rise, but that view began souring at the end of the month. One of the reasons the market was softer than expected was export demand. After modest gains in December, prices in mid- to late January slipped anywhere from $10 to $15 per tonne on cargoes leaving from both the East and West coasts. Because of this and other key factors, the February market started out with a template for lower prices.
Although export demand has been ticking up a bit lately, overall export figures havent been encouraging. Last November, for example, 1.38 million tonnes of ferrous scrap left the United States; in the past four years, only January 2011, January 2010 and January 2009 saw less scrap move from ports. For all of 2012, exports were 12.1 percent behind the previous year, although they still surpassed 20 million tonnes for the fifth consecutive year.
Going back slightly further helps to solidify the point. Despite a mostly stagnant start to October 2012, international scrap buying started to show some signs of life as prices inched up on the East Coast. Prices for No. 1 heavy melting scrap were up slightly at New York and Philadelphia export yards, and Boston and Gulf Coast exporters followed suit heading into November. By the time all of that export demand was felt inland, November domestic scrap prices rose dramatically.
When scrap prices last October hit their lowest level in about two years, the absence of exports as a significant force in shaping monthly markets was one of the main reasons cited, along with recent drops in mill order books.
Were used to fluctuations in mill (scrap buying) programs. Thats going to change with the time of year and other fairly predictable factors, one East Coast dealer said. But we had come to rely on exports being there as a safety valve for prices over the past three years. Now we just dont know whats going to happen next.
So recent talk about possible upturns in export demand heading into this summer is being read by many in the market as a sign that scrap prices might have bottomed out and are ready to start climbing during the June-to-August market period.