North American ferrous scrap market participants are not expecting any significant recovery in demand or prices this year and are now turning their attention to the first quarter of next year in the hope that renewed export activity and a blast of winter weather will reduce bulging stockpiles and bolster prices.
A turnaround in scrap market conditions is not expected in the near term, with the glut in material that has driven prices down set to persist, Casper Burgering, senior commodity economist at ABN Amro Bank, told attendees of the Institute of Scrap Recycling Industries' Commodities Roundtable Forum in Chicago.
“You have a weak demand situation, ample supply situation and higher inventories that will stay until at least the end of the year. You see at this stage some maintenance programs brought forward in the chain, and this leads to softer demand. Couple that with a bad sentiment on the economy and we won’t soon see higher prices in scrap.”
The plentiful supply of scrap in the United States for the better part of this year, sluggish export trade and cautious domestic buying patterns have enabled steel mills to drive scrap prices down in a bid to maintain a healthy margin between raw material input costs and finished steel prices, which have also lost significant value so far this year after spiking in 2018 following the introduction of the Section 232 tariffs on imported steel.
Fastmarkets’ steel scrap No1 busheling, index, delivered Midwest mill, settled at $256.15 per gross ton on September 10, down by 13.8% from $297.25 per ton in August.
At the same time, Fastmarkets' daily steel hot-rolled coil index, fob mill US, was calculated at $27.68 per hundredweight ($553.60 per short ton) on Friday, down by 0.9% from $27.94 per cwt the previous day and off by 2.2% from $28.31 per cwt one week earlier. The index has plunged by 39.6% from the nearly 10-year high of $45.84 per cwt on July 5, 2018.
A dramatic event would be required to breathe life back into the market, one ferrous scrap broker said on the sidelines of the conference. But he was doubtful that a turnaround would occur this year due to the abundance of material in the market and plethora of maintenance shutdowns now planned. At least 21 US steel mills are set to go offline for repairs and maintenance between now and year end.
“The rest of the year is a write-off. The market needs a catalyst, like a trade deal with China or exports, to suddenly pick back up. Maybe some harsh winter weather will slow down inbound flows. But I just don’t see it right now,” this broker said.
“There’s simply too much material around. Exports are off, and not just to Turkey but to other areas like Taiwan and Bangladesh. Processors also have to keep material moving and can no longer sit on stockpiles and wait for conditions to improve,” he added.
Ferrous scrap exports fell by 9.1% sequentially in July, to 1.6 million tonnes from 1.76 million tonnes in June, due to decreased shipments to Turkey, Mexico, Taiwan and Bangladesh, among others.
“There’s a lot of uncertainty out there and steel prices have yet to stabilize,” a second scrap broker said on the sidelines of the conference.
“Unless export demand comes back, the scrap market will remain oversupplied. We’re now looking to the first quarter of next year for things to improve. The winter usually slows down flows, so hopefully this will also help prices find some support.”
Fastmarkets weekly composite for shredded auto scrap, consumer buying price, delivered mill, has fallen by 29.5% since the start of this year, to $253.75 per gross ton on September 13 from $359.75 per gross ton on January 4, while the weekly composite for No1 busheling has fallen by 35.1% to $269.34 per ton from $415 per ton in the same comparison.
Trade sources also noted that prices for shredded aluminium scrap products, like twitch and zorba, have also fallen since China tightened its import standards and introduced an import quota system in July, severely impacting shredders’ margins and driving down prices paid by shredders for feedstock.
Fastmarkets assessed the aluminium scrap non-ferrous auto shred (90% Al) buying price, delivered to Midwest secondary smelters, at 38-40 cents per lb on September 12, down by 27.8% from 53-55 cents per lb at the start of this year and the lowest level since reaching 38-39 cents per lb on March 3, 2009.
“Zorba has been hit hard and the guys we speak to think the market has yet to see a bottom. With ferrous prices also falling, it’s getting close to below cost of production levels for some of these guys, and those that aren’t directly linked into a specific supply chain are under massive financial stress,” the first broker said.
But one positive for the industry is China’s apparent reluctance to start exporting ferrous scrap, instead keeping the material to feed its growing domestic electric-arc furnace (EAF) industry.
In the US, meanwhile, new EAF steel mill capacity is slated to come online in the next several years and is expected to underpin demand for prime grades of material and alternates like pig iron.
“The good news on China is that the government has made it very clear that they are not going to export scrap,” UBS analyst Andreas Bokkenheuser told conference attendees.
“They don’t want to export it, in fact they have a 40% tax on scrap exports. And the reason they don’t want to export it is they don’t want to consume anymore iron ore or [metallurgical] coal. The government realizes if they consume scrap in the electric-arc furnaces it will have a smaller impact on the environment,” he added.