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Ferrous scrap mini-boom winds up 2016, starts 2017

Jan 27, 2017 | 05:51 PM | Fastmarkets AMM staff

Tags  ferrous scrap, prices, iron ore, Pittsburgh, Donald Trump, Keetac, U.S. Steel?

There is, however, a lot of skepticism as to when the market will plateau, with everyone recognizing that large increases can't be indefinite.

In the three-month period covering November through January, the domestic ferrous scrap market exhibited its strongest quarterly showing in five years. Prices for nearly all mill and foundry grades were up $75-$100 and more in some cases, and mid-winter promised to keep things interesting moving into February.

Yet after such a strong, sustained performance, by mid-January the North American ferrous scrap market was preparing itself for a February pause so that everybody on both the buy and sell side of the equation can catch their breath.

Prices for most grades from the Rocky Mountains to the Atlantic Ocean, and from Hudson’s Bay to the Gulf of Mexico have reported triple-digit gains since the first week of November, capped off by the $35 gains for cut grades and $40 for prime grades reported in many markets in January.

Those prices have drawn significant volumes of scrap into mill yards and consensus are building that dealers, brokers and buyers will welcome a pause in February to sort things out and catch up.

“I don’t really think the market is going up again for next month,” said one Detroit broker, “unless we have one heck of a weather problem between now and then.”

A Philadelphia dealer agreed. “Next month is hard to say,” he said. “I really don’t see it going up, but it all depends on exports and weather.”

Not many in the business expect the market to slide back much, if any, in February. “We don’t see any letdown into February,” one Detroit broker said. “It’s sideways at worst.”

Conventional wisdom says that most of that upward spiral since late October is due to a combination of lack of supply and expectations that the steel industry will flourish in a new, more business-friendly Trump Administration. And there are signs that steel industry demand is increasing.

Late in December, US Steel announced it was reopening its closed-down Keetac taconite iron ore mine and processing facility on Minnesota’s Mesabi Range. US Steel closed Keetac more than a year-and-a-half ago as a glut of iron ore overwhelmed the global steel business.

But the price of iron ore has been increasing on par with ferrous scrap, and the Pittsburgh steelmaker said it planned to start calling many of the 400 Keetac employees back in January with a target date of producing iron pellets starting in March. US Steel said the Keetac facility would “supply iron ore pellets to third party customers,” including its former Canadian steel mill. At full capacity, the Keetac facility is capable of producing about six million tons of iron ore pellets a year.

That announcement came as forecasts were nearly unanimous that scrap prices would rise in January, building on the gains seen during the last two months of 2016.

Scrap prices took a strange ride in 2016, rising and falling in waves throughout the year, but in the end they gained around $91 between January and December, the largest such yearly climb since 2010. In 2015, prices lost about $177 between January and December, the worst such drop since 2008.

The bulk of that 2016 gain (about $75) took place in November and December alone, a fact prompting many in the market to attribute to the election of Donald Trump as president, which also in being credited with the bullish performance of January prices. One scrap source labeled the recent recovery in pricing as “The Trump effect.”

“Domestic scrap will likely increase another $20-$30 as raw material prices attempt to capture more of the metal spread realized on finished steel,” said another source. “Scrap and steel prices have responded to increases in iron ore and met coal in recent months,” another source said. “We’ll likely see those commodity prices retreat by (the second quarter) as additional supplies are introduced to the market and the dollar moves higher.”

Most analysts agree that in order for the market to turn around decisively in 2017, a number of trends will need to improve.

What kind of a year was 2016? Not a great one, according to most sellers, although the year ended on a note of optimism. Here are a few salient facts about 2016 scrap performance:

• January – The year started up a bit over December 2015, but represented a continuation of the lower prices levels seen throughout most of the previous year. The figure would represent what would be the low point of the year.

• First half – Prices remained under $200 per ton on average through the first quarter before seeing gains in April and May. In fact, May closed at around $270, which would end up being the high watermark for 2016. 

• Summer – This year was one of the worst summer’s the market has seen. Prices fell in June, July and August. Initially, anemic exports were held to blame, but lower mill production also figured in the equation.

• Fall – Prices dropped again in September and October – falling below $200 for the first time since March – before rallying significantly in November and December.

• December’s prices ended up much higher than those in January, which bucked the trend in recent years in which prices started high at the outset of a new year and twisted and turned their way up and down before resting lower at year’s end.

Atlhough 2017 got off to a hot start with large January gains, there is a lot of skepticism as to when the market will plateau, with everyone recognizing that $40-per-ton monthly increases can’t be achieved indefinitely.

“It is nice to have the markets cooperate for once. I hope there is some continued support at these price levels, but I feel like we will be giving some of these gains back in the next month or so,” an Ohio recycler said.

“There would have been more strength, but export is what put the damper on (the price gains). There is enough scrap to fill the mills, but no one is holding big tonnages and material held back in December got placed,” a Chicago recycler said.

As scrap negotiations progressed through January, it felt as if the market started to lose momentum as the upside had been reached. “It does look soft and not as aggressive as it was, but we will be seeing action from Turkey in the next week to 10 days as they need scrap desperately,” a seller into the Detroit market said.

One scrap processor selling into the Midwest noted that numerous factors worked to prevent the market from overheating. “The market was kept in balance because a lot of material from exporters came off the coast and was sold into the domestic market, and a brokerage arm (of a producer with many steel mills) liquidated its entire position. We are not quite at the top yet,” this source said.

There is talk that Turkey will return to the market, but exporters are holding their breath as they wait to see if the offers are competitive. “Even five or six cargoes, given what the exporters sold inland, will move the market higher,” the Midwest scrap processor said.

The success of the latest round of long- and flat-steel product price increases is the other key bellwether that will play into the demand and pricing scenario for scrap metal in February. Mills have announced $40-per-ton price hikes for flat-rolled sheet and reinforcing steel products.


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