Both scrap dealers and mill buyers can declare themselves winners in this month’s negotiations over ferrous scrap price changes. Prices of busheling and bundles inched higher by $10 per gross ton as expected while the gains for the obsolete grades were limited to the U.S. East and Southeast. These rose largely in response to the higher prices paid by Turkish steelmakers for bulk cargo shipments
bought in the past week.
It has been estimated that the busheling produced by automakers would be off by as much as one-third this month and, consequently, those prices would rise. But the mills and their brokers can tell each other that the extra funds shelled out for busheling and bundles was already factored into their cost equations for July. At the same time, however, the mills avoided an export-driven, obsolete scrap price hike. Dealers, on the other hand, can say the mills and their brokers didn't beat them down on shredded and cut grades as they had expected.
Prior to the Turkish buying binge, traders and dealers were anticipating sideways to down $10 per ton offers for cut grades and shredded. But the Turkish mills bought five cargoes from U.S. exporters over the span of about seven days beginning at the end of June. They also raised their offers for 80/20 heavy melt and the other obsolete grades by about $10 per tonne. That was a turnaround from the trend of the past two months when they were buying one cargo per week and prices rose or fell by a few dollars per tonne.
Dealers were encouraged by the export buying binge, but it was short-lived.That export flurry changed dealers’ perceptions of the market... for a few days or hours in any case. Several expected prices at the docks and at the coastal mills to rise, and in turn to see those coastal price increases roll inland and benefit dealers there as well. It didn’t, yet it may have shored up the heavy melt and shredded prices there. Some brokers and mill buyers were threatening to lower these this month. Those reductions would offset higher prices paid for bundles and busheling, said a northern Ohio trader.
Instead, a few Eastern long products mills hiked their prices for cut grades and shredded by $10 per ton following the extended July 4th holiday weekend. Shredded rose to $285 per ton on a delivered-to-the-mill basis in the East, five-foot plate and structural scrap climbed to $280 per ton and No. 1 heavy melt inched up to $260 per ton. A Philadelphia-based trader said he saw this as a preemptive move by the mills there in case the exporters raised their prices. Some mills in the Southeast also boosted their prices for shredded bought from export yards and other coastal scrap suppliers by $10 per ton.
The export tidal wave that was supposed to lift all price in the Midwest, washed out somewhere short of the Ohio/Pennsylvania state line. Steelmakers in Detroit raised their offers for bundles and busheling by $10 per ton Thursday morning, but left the prices for shredded and the other obsolete grades at last month’s levels. Many of the mills in other regions followed suit within a day or two.
If there was any dealer resistance to these sideways offers, it had collapsed by Friday morning. There were a few early transactions at lower prices. Later, several of the EAF-based flat-rolled mills in the Midwest and South were paying $10 per ton more for industrial steel scrap, unchanged prices for heavy melt, P&S and shredded scrap, said a Chicago area trader. Also, he said, several mills had placed price-to-be-determined (TBD) orders with some key suppliers before the holiday. They minimized their spot market buys and limited the upward pressure on the published price indices that determine these purchase prices.
Some EAF flat-rolled mills have sapped the strength from industrial steel scrap prices by bringing in more scrap from foreign dealers. One major mill has been a steady buyer from western European exporters and in recent months has also obtained cargoes of Japanese factory bundles (shindachi). This month, it also benefitted from cutbacks in busheling consumption by two Canadian mills. One has a scheduled maintenance outage while the other has opted to use more shredded instead of busheling. Because of the stronger U.S. currency, that mill bought shredded at what one trader said were essentially sideways prices in the U.S.
Imported pig iron prices have dropped as well. They are down to about $345 per tonne delivered to the Gulf Coast ports. Even adding another $20 or $30 per tonne for offloading onto barges and transport up the rivers to the flat-rolled mills in the South, pig iron is competitive with busheling at $380 and $390 per gross ton from the upper Midwest and probably easier to obtain because of the rail transport woes.
Though most Midwest mills managed to avoid price increases for obsolete grades, a few steelmakers in Ohio raised their offers for remote supplies of shredded scrap from the East Coast by about $10 per ton. They are now up to $300 per ton delivered to their mills. The extra $10 covers the higher rail freight costs from the distant scrap yards.
Freight transport problems are an on-going hurdle for many dealers and mills.Dealers are still having problems delivering the scrap they sold to the mills on a timely basis. The delays include both rail and truck shipments, but for different reasons. Also, there are both benefits and headaches with these slowdowns.
The railcar shortages are an equipment problem that arose because one major carrier decided to pull many of its older gondola cars out of service and emphasize using the new high-sided cars that carry heavier payloads. This has created problems for dealers that don’t own or lease railcars and rely on the railroads to supply them with cars.
But even those with their own fleets can’t get their cars back quickly. Some mills use these to shuttle scrap from the mill scrap storage areas to their scrap bays where it is loaded into charge buckets and carried to the melt shop. Unlike the railroads, dealers and brokers who own gondola cars usually don’t charge the mills demurrage for the late return of this equipment.
There are no shortages of trucks, but there is a shortage of qualified drivers with commercial driver’s licenses and who are able to pass the drug and alcohol tests required by the state transport officials and insurance companies. One Midwest trader said it is a chronic problem for both the independent trucking companies and for scrap dealers that have their own trucks. And, he added, “Nobody sees a quick fix for this.”
But the transport problems are seen by some as both a blessing and a curse. A trader with one major Midwest processor said that at the end of June, his company still owed several mills as much as 25% of the scrap it sold to them last month. That meant these mills still had a significant volume of scrap in their supply pipeline at the start of July and had less reason to worry about running out of scrap as they haggled with dealers over prices.
At the same time, however, they could not afford to cut prices and cancel those orders. Doing that could eliminate all those shipments immediately and potentially leave some mills short of key grades like busheling and plate & structural scrap. There are no guarantees that they could repurchase the same unshipped scrap at the same price. Dealers are more apt to sell it to those mills that are not cutting their prices.
Ferrous scrap price stability and delayed steel trade action breeds an uncertain outlook.The uncertainty of automotive scrap output provided much of the firmness for scrap prices this month. That is just a one-month phenomenon because of the scheduled vacation shutdowns and the auto industry’s efforts to reduce inventories of slower selling models. Next month, output should be high unless auto sales retreat further. But some traders are worried that an easing on auto demand and the growing uncertainty over the likely recommendation from the U.S. Commerce Department’s Section 232 trade investigation could mark a turning point for steel and scrap demand.
The domestic steel industry’s enthusiasm and near certain belief that Commerce Secretary Wilbur Ross, a former steel executive, would recommend a combination of higher tariffs and trade quotas has been tempered in recent weeks by delays and a rising undercurrent of opposition from other segments of the economy.
One Midwest trader said he believes many of the steel service centers and distributors have built inventories to cope with the potential loss of imports if more restrictive measures are proposed and approved by President Donald Trump. If the 232 recommendations are much weaker than anticipated and imports continue to flood the U.S. market, he said, the steel warehouses may dump their inventories and cutback on steel purchases until their supply and demand is back in balance. That could lead to a drastic drop in steel sales, scrap demand and prices of both.
The pace of domestic raw steel production has not varied much in recent weeks. It rose to 1,733,000 net tons last week while the industry’s capability utilization rate climbed to 74.3%, the American Iron and Steel Institute said. That is an increase of 0.9% from the previous week when production was 1,717,000 tons and the industry’s operating rate was 73.6%.
Offshore demand could offer more hope for dealers. The U.S. ferrous scrap market hasn’t experienced an export boom for several years, a boom like the one that peaked in 2011 when 24 million tonnes were exported. Export sales are now down to a 13 million tonne annual pace. Steel billet prices in Asia have risen to $440 per tonne making scrap 80/20 heavy melt and other obsolete scrap a cheaper alternative for the Turkish mills and other scrap importing nations.
Turkish steelmakers are not the only offshore scrap users with a big appetite and willing to pay more for scrap. Tokyo Steel Manufacturing Corp., Japan’s largest EAF steelmaker, has raised its scrap prices in the past week. Also, an auction by a key Tokyo area scrap export organization saw prices for its H2 scrap, equivalent to U.S. export heavy melt, rise by about $19 per tonne from last month’s price level, to about $246 per tonne free alongside a ship.
Shredded Scrap Thermometer: Weaker prices and supply.Shredded scrap managed to avoid the price chopping block this month despite reports of excess supplies in some regions. Some domestic mills on the East Coast felt they had to raise their shredded offers to avoid losing it to foreign steelmakers. Others in the Midwest and South left the price unchanged and decided not to cancel late shipments. Doing so could have left them short of scrap in the critical first week or two of the month. Despite those factors, shredded prices and demand could face a rocky road in the coming months.
• If domestic steelmakers don’t obtain the trade restrictions sought through the 232 investigation,
it could mean a cutback in steel production and less scrap demand. Shredded, because it is in excess supply in several regions could see even lower mill prices and a subsequent drop in dealers’ buying prices.
• Lower prices normally don’t reduce the flow of shredded feedstocks immediately, some suppliers will continue to see into a weaker market initially if they believe another price cut may follow. Their goal is to get rid of material before the prices go lower. If a price decline continues into the fourth quarter, it could compound the seasonal loss of feedstock in the winter months.
• A spike in offshore demand could encourage major exporters to substitute unsold shredded scrap for short supplies of heavy melt and the bonus grade (five-foot plate and structural scrap) and further constrict the supply of shredded.
• It often takes shredders two or three months to restock their output pipeline after drastic reductions in their buying. Auto wreckers and smaller scrap dealers will wait until they hear a second or third price increase before they will sell much of the shreddable feedstock they have accumulated.
Lower prices are the only factors that can slow shredded scrap output. Two other wild cards can impact supply and production regardless of the prices offered for feedstock. These include:
• As overall unemployment has fallen in recent years, the ranks of the scrap industry’s so-called peddler trade declined. People without incomes who were willing to dumpster dive to earn money may have full time work now and less time to spend gathering metallic items from the trash.
• Weather impacts shredded output in the summer as much as it does in the winter. Utilities will cut off electric power supplied to shredders and steelmakers’ electric arc furnaces. The mills can resume production at night. Shredders, particularly those in cities, usually can’t do that without angering many of their residential neighbors.
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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