A welcome leading indicator in an ailing world

Departments - Commodities Ferrous

Demand for ferrous scrap mill buyers domestically and overseas seems to be pointing toward melt shop schedules that are revving up in several parts of the world.

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October 6, 2020

A steel industry that has struggled along with much of the rest of the pandemic-affected global economy is showing signs of reviving if September’s scrap market is a leading indicator.

The late August and early September ferrous scrap market continued to be affected by supply figures that remain well below pre-COVID-19 levels. However, demand from mill buyers domestically and overseas seems to be pointing to melt shop schedules that are revving up in several parts of the world.

After prices fell in July and early August in the ferrous market, domestic buying and selling for the first 10 days of September as tracked by the Fastmarkets AMM Midwest Index showed $30 to $40 per ton rebounds for the most commonly traded grades.

“We’ve seen some early signs of recovery, [and] we’re off the very bottom that we saw in early May.” – AISI Interim President and Chief Executive Officer Kevin Dempsey

By late August, London-based Kallanish was reporting that Turkish mills and their buying agents were casting a wide net that reached the North American, European and Russian scrap markets as electric arc furnace (EAF) mills there sought feedstock.

Although steel output in the U.S. has continued to rise slowly on a week-by-week basis, the relative weakness of scrap supplies post-pandemic restrictions meant the new overseas attention was enough to put upward pressure on prices.

Turkey was not the only nation represented by willing buyers, according to reports from Kallanish and other media outlets, with cargoes and containers bound for Vietnam and India also ramping up in late August and early September.

The overseas bookings were welcome news for some recyclers as hope for a V-shaped rebound in domestic steel production was supplanted throughout the summer by a 1 percent or so weekly drift upward, according to figures calculated by the Washington-based American Iron and Steel Institute (AISI).

However, at the same time overseas mills were shopping for scrap at the start of September, the AISI recorded domestic steel output as growing by 3.3 percent in the week ending Sept. 5 compared with the prior week. The nearly 1.43 million tons of steel produced by mills in the U.S. in the first week of September was still smaller by more than 20 percent compared with output the same week in 2019.

Nonetheless, the 63.7 percent mill capacity rate in early September points to ongoing improvement compared with the COVID-19-related low point of 51.1 percent capacity the week ending May 2. Output that week was just 1.14 million tons.

In an interview with AISI Interim President and Chief Executive Officer Kevin Dempsey, prepared by the organization, he expresses confidence in the sector being poised to rebound. “We’ve seen some early signs of recovery, [and] we’re off the very bottom that we saw in early May,” he says.

Governments around the world have demonstrated a willingness—if not an eagerness—to spend to jump-start economic output that had plummeted unexpectedly because of the virus.

Although China’s data indicates its economy has been one of the fastest to rebound, its reliance on basic oxygen furnace (BOF) steelmaking and its treatment of overseas scrap as “foreign garbage” has limited its recent role in the global scrap market.

China’s “belt and road” diplomacy and lending, however, are helping boost demand for steel and imported scrap in neighboring nations, including Pakistan.

U.S. Census Bureau figures show the U.S. shipped 210,000 metric tons of ferrous scrap to Pakistan in just the first four months of 2020, putting America on track to send more than 600,000 metric tons of ferrous scrap to Pakistan this year. Pakistan trails Turkey, Mexico, Malaysia, Taiwan, South Korea, Bangladesh, India and Canada as leading U.S. ferrous scrap export destinations in the first four months of the year.

While China’s regulatory environment remains a minefield for exporters of every scrap commodity, the nation’s drive to replace some BOF capacity with EAF melt shops has caused its steelmaking associations to develop scrap import standards that can meet government approval.

In September, Shanghai Metals Market reported that these new standards “may change ‘steel scrap’ into ‘recycling steel materials’ so as to avoid imports of inferior steel scrap.”

Chinese steelmakers likely will target domestic scrap purchases first, but they could find chemistry reasons to seek high-grade overseas scrap.

An early September announcement from Italy-based steelmaking equipment maker Danieli says it will supply four 150-metric-ton “zero-bucket ultra-high-power electric arc furnace” units to Guangdong Jinshenglan, a steelmaker based in China. That endless casting system will almost certainly require high-grade feedstock to produce steel of sufficient chemistry.