Sharp contrasts, but signs of pent-up demand

Departments - Commodities Ferrous

Scrap supplies have recovered compared with the darkest days of April, but flows are far from fully recovered.

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August 26, 2020

August ferrous scrap pricing settlements led to a series of contrasts, causing recyclers with export options to experience rising prices during the early August selling period, while those farther inland saw stagnant-to-falling per ton pricing.

By the time Fastmarkets AMM monthly indexed pricing was calculated Aug. 10, average prices rose from 3 percent to 4 percent for exported scrap, while two of the three Midwest Index price averages dropped, with the No. 1 busheling grade losing 7 percent of its July value.

After several months of prompt grades being the scarcest of commodities, the return of automotive production has closed the previous COVID-19-related supply gap. This caused the No. 1 busheling grade to fall to a price not seen since November 2019.

After the July price declines, export buyers from a number of nations returned to the market to buy up scrap on both coasts. The window also was boosted by a coinciding decline in the value of the U.S. dollar, which was welcomed by many overseas traders.

Scrap supplies have recovered compared with the darkest days of April, but flows are far from fully recovered, recyclers say, signaling that any further boost in demand could very well run into a wall on the supply side.

“We have settled in to about 70 percent volumes versus pre-COVID levels and have made adjustments in headcounts and costs to make that work,” says a scrap processor on the East Coast. The 70 percent volume figure is in line with comments made by recyclers in other regions of the U.S. earlier in the summer.

As of mid-August, that 70 percent figure qualifies as a “decent flow” of scrap to the East Coast recycler, who indicates it represents a rebound from the painfully subdued volumes of the second quarter.

In his region, the boosted export demand was the predominant market factor in August. “August is challenging because two local exporters have cargoes to fill and are buying very aggressively at margins we think are too small,” he says.

While Midwest Index pricing for No. 1 busheling and shredded scrap declined in August, the $2 per ton increase in No. 1 heavy melting steel (HMS) is an indicator that domestic mills also had to compete with export buyers to obtain their monthly supply.

“Midwest domestic prices were sideways, but East Coast mills paid from $20 to $25 more per ton to compete with exporters and to replace all the scrap going to Turkey and to Asian container buyers,” the East Coast processor says.

The ongoing effects of the pandemic continue to present a cloudy picture, especially in the U.S. However, steelmakers are slowly increasing output in the near term and in the longer term are investing in more electric arc furnace (EAF) capacity.

The week ending Aug. 8, U.S. mills produced more than 1.35 million tons of steel, the American Iron and Steel Institute, Washington, says. That weekly output represents a steady march upward (and an 18 percent increase) from a COVID-19-related bottom of 1.14 million tons of output during the week ending May 2.

“We have settled in to about 70 percent volumes versus pre-COVID levels and have made adjustments in headcounts and costs to make that work.” – an East Coast scrap recycler

For the first time since the full force of COVID-19-related restrictions struck, the weekly mill capacity rate reached 60 percent. During the trough week ending May 2, the mill capacity rate fell to 51.1 percent.

The march toward additional EAF capacity, referred to in this department last month, has continued with yet more project announcements.

In mid-August, ArcelorMittal announced plans to install 1.5 million tons per year of EAF capacity in Calvert, Alabama, and Commercial Metals Co. (CMC) announced it will build a 500,000-ton-per-year EAF “micromill” adjacent to an existing one in Mesa, Arizona.

The CMC project can be considered replacement capacity for its idled EAF mill in Rancho Cucamonga, California. ArcelorMittal, however, says the slabs produced in Alabama will replace slabs that had been imported from Brazil.

Considering the difficult 2020 that steelmakers and scrap processors have been facing, the scrap sector likely is encouraged by the strong medium-to-long-term demand scenario. Scrap processors also may be asking where all the scrap will come from.

Along with American manufacturing not being fully ramped up, construction has not fully rebounded and households are showing signs of generating less scrap in the near term.

According to a study by London-based IHS Markit, the average age of light vehicles in operation in the U.S. has risen to 11.9 years, about one month older than in 2019. Underlying weaknesses in several market segments, combined with increased vehicle prices, have put upward pressure on average vehicle age.

As consumers hold on to their vehicles longer, dismantlers and shredders likely will see that much less feedstock.