The domestic ferrous scrap market remained in a stand-off late Thursday. Only a single small EAF-based long products mill made its purchases for the month at $10 per gross ton over what it paid for scrap in June. Also, it bought only half of the tonnage it usually buys each month because of a planned two-week shutdown for maintenance work.
Mills in the Midwest and the South made a few buys earlier in the day and on Wednesday, but these were from individual dealers in these regions. Most were small purchases and ranged from a few hundred tons to 1,000 tons, said a Birmingham-based trader. Some were at unchanged prices, while others were up by $5 or $10 per ton, he said.
Whether or not these purchases and the lower than normal tonnage bought by the Eastern mill are definitive indicators of the market’s price trend has yet to be determined. Many were isolated buys from nearby suppliers and not the large tonnage purchases by major scrap-consuming mills. And several steelmakers have yet to make any buys other than a few price-to-be-determined (TBD) deals made in the past week.
Most dealers, brokers and mill buyers are expected to finalize those purchases today (July 7). That would ensure that the published indices have the price changes, if any, in time for their publications today and Monday. The first Friday and second Monday of each month are the usual settlement dates for most ferrous scrap prices in the U.S., but that may not happen this month for several reasons.
Turkish steelmakers launch a small midsummer scrap buying binge.First were the unexpected sales of several bulk cargoes of scrap to Turkish steelmakers this week and last week. And the accompanying spike in the prices! Four cargoes were booked last by U.S. East Coast exporters and a fifth cargo was sold earlier this week. The 80/20 heavy melt price rose to $298 per tonne delivered to a Turkish port in the latest transaction. That’s an $8 increase in a week and $30 higher than it was 30 days ago. The shredded scrap price rose to $304 per tonne, $1 per tonne higher than the typical $5 per-per-tonne premium over the heavy melt. Likewise, the bonus grade (five-foot plate and structural scrap) portion of the cargo sold at $310, per tonne, a similar $6 per ton premium instead of $5-per-tonne over the shredded price.
The Turkish steel mills have purchased 10 cargoes since the beginning of July, five of which were from the US. In June and May, by comparison, they were buying an average 40,000 tonne cargo once a week. Stronger domestic and overseas demand for their rebar accounts for the renewed interest in U.S. scrap, said an East Coast trader.
The Turkish mills have siphoned off much of the scrap that was available in Europe. The average price of about $300-305 per tonne for heavy melt and shredded scrap from the U.S. is a bargain versus the current F.O.B. price of $415 per tonne for steel billet at Black Sea ports in Russia and Ukraine. It typically cost about $90 to $100 per tonne to convert scrap into billet and another $40-50 to roll billets into rebar.
More importantly, these deals have produced a new enthusiasm among U.S. East Coast scrap dealers, both large and small. A Philadelphia-based trader said the new export deals will push the export yards to raise their buying prices in the coming week after the domestic mills have finished their buys for the month. The export heavy melt buying price at the piers was between $220 and $235 per gross ton in June, he said. Minus the costs for stevedoring and ocean freight, he said export heavy melt could be valued at $265 per ton on the docks ready to be loaded on a ship. But the export yards could be forced to pay as much as $270 per ton if they are short scrap and have a boat in port.
Also, he added, the exporters may not be able to reach out to the distant scrap suppliers in western Pennsylvania and Ohio for additional scrap because of the shortage of railcars –even for those dealers that own or have leased cars. Consequently, he said, what has been a buyers’ market for the exporters for the past few years has suddenly become a sellers’ market for the local dealers.
Inland scrap dealers look for higher offers for both obsolete and industrial grades.Coastal dealers are not the only scrap handlers seeing a brighter horizon because of the export sales. Traders and dealers in the Midwest and Southeast said they were already anticipating a rise in the prices of bundles and busheling this month because of the likely shortfalls in output by the auto stamping plant and other auto parts makers resulting from lengthier summer vacation shutdowns this year. Many had said they expected to see about a $10-per-ton rise in these prices this month. Now, however, several said they believe they can hold the line and possibly get higher offers for heavy melt, plate and structural scrap and even shredded.
Scrap sellers are unwilling to accept last month’s prices for their scrap. Now, an Ohio area broker said, some want a $10-per-ton hike for the obsolete grades and higher increases for their bundles and busheling. Many have yet to make an offer of tons and prices to the mills and are instead waiting for him and the mill buyers to make a pitch. The mill buyers, on the other hand, aren’t willing to buy a ton until they know what prices the dealers want, he said. Dealers are looking for higher offers even though some smaller mills in the Detroit area, northern Ohio and central Pennsylvania have scheduled maintenance outages for a week or two this month as they usually do each year.
A Chicago area broker said despite the dealers’ new hopes for across the board higher prices, he believes the price moves will not be uniform both in terms of the grades and from region to region. Several mills were smart enough to stockpile industrial scrap in the past two or three months, and they won’t be affected by this month’s loss of as much as a third of the busheling and bundle supply. Likewise, the mills with captive shredders can fill their own needs. Last, he added, many of the smaller mills with summer outages won’t be buying much. Some may cut their shredded purchases by as much as 50% this month, he predicted.
A Midwest buyer said he’s concerned because he’s seen scrap prices trending upward since last year, but steel prices, especially flat-rolled prices that were so strong last year, have been drifting down. Hot-rolled coils rose to as high as $660 per net ton, but are now down to about $610 per ton. And steel imports, despite the tariffs imposed by the federal government last year, are on the rise this year. The EAF-based flat-rolled mills still have profit margins, he said, but these have eroded in the past six months. Now, he added, mills expect their buyers to stand firm and end the upward spiral in scrap prices.
One reason might be the slowing pace of domestic steel production. Domestic raw steel output totaled 1,717,000 net tons last week while the industry’s capability utilization rate was 73.6%, the American Iron and Steel Institute said. That’s the second decline in as many weeks. One week earlier, steel production was 1,729,000 net tons and the operating rate was 74.2%.
Some domestic mills may have forgotten how an export boom can affect supply.Another Midwest dealer said the mills have not recognized that the scrap market has bottomed. Now, he said, some mills have minimal inventories of obsolete scrap and are still reluctant to buy more because they believe the market is oversupplied. That could change, however. “The mills have not had a serious supply problem for several years and they have not seen a strong export market for several years,” he said.
Ferrous scrap exports have averaged about 12 million tonnes in the past two years. They had been declining for the past five years since a record 24 million tonnes were exported in 2011, according to the U.S. Commerce Department figures.
One factor that some of the mill buyers might overlook, he added, is that the export yards’ buyers don’t play by the same ground rules as the domestic mills. U.S. mills make the bulk of their scrap buys in the first week of each month and let the dealers ship those tons to their mills throughout the rest of the month. Export yards, however, buy and ship at any time.
During the last export boom, the docks sometimes waited until the domestic mills finished buying for the month before raising the ante on heavy melt and shredder feedstock. The buyers at the small coastal mills were the first to feel the supply squeeze. They saw the docks as their main competition for scrap. Some inland mills didn’t see the challenge until local scrap suppliers were unable to complete shipments even when, unlike now, they had plenty of railcars and scrap flows into their yards were steady.
Shredded Scrap Thermometer: First Fridays and second Mondays.These dates are critical for both steelmakers and scrap dealers every month. Some mills buy a pecified tonnage from scrap suppliers each month and use the published prices on those dates as the basis for these deals. Others use these dates to determine what will be paid for the scrap bought with a TBD purchase order. Some mills calculate scrap surcharges on finished steel products based on the prices on these dates. Scrap dealers likewise use those dates to determine the prices paid for industrial scrap. Usually, prices are resolved by those days each month. This month, however, several final pricing decisions may not come until early next week. The reasons for the delay include:
• Prior to last week, domestic mills expected to offer the same prices for shredded scrap and heavy melt that they paid in June. Some even hoped to lower these prices as they did last month, but the Turkish buys in the past two weeks may have killed those hopes. Some dealers now are looking for higher offers.
• An increase or decrease in one region or for one or two grades of scrap sometimes produces the same results in other regions. Today, an increase of $10 or $20 per ton for seasonally scarce bundles and busheling may not occur even in regions where there is little or no industrial scrap because of the bigger role played by ferrous scrap imports, direct reduced iron and imported pig iron.
• A price fixed on a certain date eliminates work for scrap dealers and their industrial suppliers each month. Yet, these rules usually apply only to the steel scrap generated by a manufacturer. Many plants also generate nonferrous metals and usually are paid based on the LME or CME/Comex current price on the date that scrap is picked up at their factories. Many nonferrous metals are traded on metal exchanges and they, and not a single date, play a significant role in determining those scrap prices.
Published price indices are a simple and well-established means of determining a price for a specific commodity. But there are “wild cards” that can play havoc with the prices and what some users expect from them. These include:
• Tying scrap prices to a published price provides little or no indication what direction prices are likely to take in the future. Spot market transactions at mid-month or later are rarely reflected in these prices. Some traders call such transactions “quiet deals.”
There are two main types of ferrous scrap—industrial and obsolete. Industrial scrap is not price sensitive. Regardless whether a mill pays $8 or $800 per ton, a fixed volume determined by metal manufacturing activity comes to market each month. However, tonnage of obsolete scrap like shredded is determined by its price. When steel mills cut their buying prices and tonnage requirements, dealers respond with similar cutbacks and the flood of shreddables coming across the scales at dealers' yards slows to a trickle within a few weeks or a month or two.
The Nasdaq Futures Exchange (NFX) expects to start trading in the Midwest US shredded scrap index futures on September 15. The contract will trade in 10-gross ton units with the prices settled on the 11th day of each month against the TSI Midwest US Shredded Scrap Index published by Platts. For additional information about shredded futures trading, contact John Conheeney at WSEM. His phone number is 201-503-0922 and his email is
jconheeney@wsemgroup.com.
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