Building bridges and anticipation

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Scrap processors anticipate a solid year for ferrous markets.

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January 30, 2021

Steel producers around the world entered 2021 either with order books full thanks to infrastructure spending or a willingness to increase output in anticipation of a healthier world. As a result, ferrous scrap prices soared upward for a third straight month.

As in November and December 2020, export buying was a key component on the demand side. Bulk cargoes were booked on the East and West coasts during the 30-day buying period that led to the Jan. 6 and Jan. 10 Fastmarkets AMM price index figures.

“I’ll state the obvious by saying as long as the virus remains at bay and there is not a government-mandated shutdown, we should see a solid year.” – a scrap buyer in the Great Lakes region

On the supply side, processors say increased scale pricing has yielded improved peddler traffic and has moved scrap uphill from small dealers to larger shredder yard and export yard operators.

“January is off to good start,” says a buyer of manufacturing scrap in the Great Lakes region. “I’ll state the obvious by saying as long as the virus remains at bay and there is not a government-mandated shutdown, we should see a solid year,” he adds.

The increased generation is welcome at a time when three months of rising prices have provided good margins for scrap processors and anyone else holding inventory of ferrous scrap they had purchased in late 2020 or earlier.

Headaches for processors and traders mostly involve higher seaborne shipping rates and a scramble to find containers to serve that portion of the export market. One recycler says he could have booked and followed through on more overseas sales in December and January if containers were available.

The confluence of a) global and domestic demand, b) good but not great supply and c) freight headaches caused Fastmarkets AMM index prices to rise by $90 to $110 per ton, depending on the grade and destination. At $110 per ton, heavy melting steel (HMS) scrap off the East Coast was the biggest riser. Buyers from a variety of scrap-deficient nations with rebounding economies and metals-intensive stimulus plans kept those exporters busy.

Processors and traders on the West Coast and in the Midwest experienced only slightly less buying enthusiasm, with ferrous scrap prices rising from $90 to $107 per ton.

Recyclers trying to determine how long the price boom can last are keeping an eye on infrastructure spending in the U.S. and globally and the impact of vaccines on the health (and activity) of people around the world.

By mid-December, as nations began to approve COVID-19 vaccines and roll them out, metals producers and speculators seemed to gravitate to the notion that the supply-and-demand scenario for metals was about to change. On the London Metal Exchange (LME) Dec. 15, 2020, the copper cash contract closed at $7,753 per metric ton ($3.52 per pound), and aluminum finished that day at $2,022 per metric ton, or 92 cents per pound. That contrasts with May 1, when the LME aluminum cash price was 28.8 percent lower at $1,440 per metric ton (65 cents per pound), and copper pricing stood at $5,061 per metric ton ($2.30 per pound), 34.7 percent lower than the mid-December price.

Finished steel and ferrous markets have followed the same bullish pattern, with steelmakers in the U.S. and elsewhere raising prices at a rate designed to help keep up with rising scrap values.

The turmoil at the U.S. Capitol Jan. 6 and any looming shifts in political policy might have caused concern among Wall Street investors, but it did not seem to put the brakes on steel output or scrap demand.

While scrap prices were settling $100 per ton higher, the Washington-based American Iron and Steel Institute reported domestic raw steel production rose by 3.6 percent in the week ending Jan. 9 compared with the prior week. AISI says steel mill capacity rates in the U.S. have risen from a COVID-19-affected low of 51.1 percent in early May 2020 to 75.4 percent the week ending Jan. 9.

Additionally, figures from the Brussels-based World Steel Association for November 2020 portray a world where the output of most nations had reached or surpassed prepandemic levels.

One last global demand aspect involves the approval of China’s government for steelmakers there to import about a dozen grades of ferrous scrap. This occurs at the same time steel producers there are investing in electric arc furnace production.

Recyclers know all boom cycles come to an end. Those looking for shifts in momentum might have noticed that steel rebar prices in China began drifting downward in January, while inventory levels for rebar were rising there. Whether this signals the winding down of metals-intensive infrastructure spending by China or if it simply means Chinese New Year is approaching provides fodder for speculators.