Riding the wave

Departments - Commodities Ferrous

Ferrous scrap prices stabilized in July, but few expect a speedy market recovery.

July 30, 2019

Despite signs pointing toward slowing national and global economies, some ferrous scrap prices stabilized in July, giving processors a brief respite from the steep declines experienced in the first half of the year.

Coming off a $90 drop in 90 days for many grades, processors and buyers predict prices are nearing the bottom.

Many, however, don’t anticipate a speedy market recovery. And one source predicts prices could fall further.

“I think we’re close to a low … but I don’t think prices will be going up in a major way any time soon,” a scrap broker based on the East Coast says. “If I was a betting man, I’d say ferrous will be down $20 to $30 by December.”

“I think we’re close to a low … but I don’t think prices will be going up in a major way any time soon.” – an East Coast scrap broker

Ferrous scrap grades in the northern half of the U.S. still experienced losses for the July buying period, with Fastmarkets AMM Midwest Ferrous Scrap indices reflecting $30 dips across the board as reported June 10. Prices in Chicago took a particularly large fall in July, with No. 1 heavy melting scrap (HMS) dipping $16 to $220 per ton and No. 2 bundles dropping nearly $20 to $127 per ton.

Prices in the southern half of the country, however, moved sideways in July, losing just a few dollars in value across the board.

While some ferrous scrap grades continued to lose value into July, sources say the increasing price of iron ore—which reached $120 per ton in June, a five-year high—has kept prices from toppling further as more mills turned to busheling grades to replace this material. “Scrap metal is at a low, but because iron ore got expensive, that’s been helping scrap metal prices,” says a scrap buyer in the Southeast.

Meanwhile, with pricing at record lows, scrap buyers report that peddlers have been holding tight to their material, reducing incoming traffic across their scales.

“People don’t want to go out and gather scrap when prices are so low. There’s no financial incentive for it,” says the scrap buyer in the Southeast. “A lot of our larger suppliers are scrap yards, and a lot of the peddlers just aren’t working.

“With the low prices, intakes in our yard have been off by quite a bit,” the buyer in the Southeast adds.

A number of sources say scrap generation slowing to a crawl is one of many indicators signaling a slowing domestic economy.

“Our flow has slowed down quite a bit,” says a scrap dealer in the Great Lakes region. “Demand isn’t really there.”

Scrap yards are reporting static supply and scant interest from domestic and overseas buyers. Turkish buying activity was spotty in July for August deliveries as a period of negotiation put purchases on a hiatus, which eventually wound up driving export prices down further, according to a report from Fastmarkets AMM.

While scrap processors are managing through scheduled mill outages, steelmakers are having problems of their own. Charlotte, North Carolina-based Nucor, Pittsburgh-based U.S. Steel Corp. and Fort Wayne, Indiana-based Steel Dynamics Inc. all recently announced downbeat second-quarter earnings, citing softening end-market demand, decreased shipments as a result of flooding and weak steel prices. U.S. Steel took a strong blow, announcing more mill closures for an indefinite time.

U.S. Steel originally announced that it was taking downtime for maintenance on its Great Lakes B2 blast furnace in Michigan. However, market conditions have led the company to consider extending the shutdown. “We expect the B2 blast furnace to remain idled after the completion of the planned outage,” U.S. Steel says in a news release. “In addition, we expect to temporarily idle a south blast furnace at our Gary Works facility [in Gary, Indiana]. ... We will resume blast furnace production at one or both idled blast furnaces when market conditions improve.”

The steel production slowdown in the U.S. has been illustrated by the dwindling capacity utilization rates at domestic mills, which officially dipped below the 80 percent threshold at the end of June for the first time this year.

In the week ending July 6, domestic raw steel production was 1.85 million net tons, while capacity utilization was 79.4 percent, according to the American Iron and Steel Institute (AISI), Washington. Conditions improved slightly in the week ending July 13, with production at 1.87 million net tons and a capacity utilization rate of 80.2 percent.

Construction spending also slammed on the brakes in May, seeing the largest decline since November 2018. Spending on private construction dropped and investment in private residential projects fell for the fifth consecutive month, reaching the weakest point in nearly three years, according to U.S. Census Bureau data.