Holding steady, with demand meeting supply

Departments - Commodities Ferrous

Domestic steel industry output rose steadily in October, and export markets remained an option for steel scrap.

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October 26, 2020

Ferrous scrap prices in the early October buying period held steady in the U.S. domestic market, with domestic steel industry output rising gently and export demand remaining a factor.

Comments from scrap processors to Recycling Today and mid-October media reports initially indicated overseas and domestic scrap buyers might have been planning to scale back purchasing requirements during the rest of 2020, but a rebound in Turkish demand could keep prices stable going forward.

The supply-demand balance in late September and the first week of October did not change sufficiently to influence October prices, as measured by Fastmarkets AMM pricing indices.

None of the publication’s three Midwest Index prices changed by more than $3.50 per ton in October, with neither the prompt No. 1 busheling or obsolete No. 1 heavy melting scrap (HMS) grades shifting by even $1 per ton.

Pricing for the publication’s export grades, meanwhile, also remained stable, though on the East Coast that lack of price movement could have been owed in part to a lack of bookings to provide a new yardstick by which to measure.

On the West Coast, “Demand via export sales is healthy,” a recycler based there tells Recycling Today. “Mills overseas want and need product, so the interest has been continuous and strong from our perspective.”

“Currently, companies are experiencing 15 percent less in volumes this year compared to historical averages.” – a scrap processor on the West Coast

The West Coast-based recycler says, “We talk with dozens of yards with direct access to export sales or local domestic sales, and moving product hasn’t been an issue. There are October shipments being made, and there is interest for future sales too, although those talks are a little quiet.”

He adds, “Overall, availability of scrap is fairly healthy considering the environment we’re in. The challenging part has been the margin erosion we’ve seen from large competitors trying to pay more for scrap to try to maintain ‘normal’ levels [of volume] compared to years past.”

A recycler in the Midwest, regarding supply, says, “Things seem to be a little busier now, but not crazy busy by any means. Our industrial accounts are doing OK.”

At one point, market participants expressed concerns about a pullback in demand from mills in Turkey, which has seen its currency depreciate. Also looming in some American minds is a sense of overall uncertainty. “I think there is a lot of uncertainty out there with the election coming up and COVID,” the Midwest recycler says.

Fastmarkets AMM reports only two bulk cargoes were booked to Turkey in the early October buying period. That is a “far cry,” the publication observes, from the two dozen cargoes booked in June and July that helped to push summer scrap prices upward.

The disappearance of Turkish buying had caused some speculation that pricing could retreat in the final two months of 2020. However, in the second week of October, new orders were received from Turkey and downward price expectations receded. Factors including the U.S. presidential election, the stock market’s reaction to it and the ability of the Turkish government to keep its economy on track will affect steel output and scrap demand in the last two months of the year.

In a regional assessment by the West Coast recycler, “Currently, companies are experiencing 15 percent less in volumes this year compared to historical averages, with the tightest margins seen in decades. This is an improvement from the 30 percent [or so] reduction in supply we saw at the start of the pandemic.”

U.S. steel output is down by more than 15 percent compared with pre-COVID levels as measured by the American Iron and Steel Institute, Washington. However, the gap is narrowing compared with earlier in the pandemic. In the week ending May 2 of this year, production was 39 percent less than in the comparable week in 2019.

Domestic consumers might wish to see lower prices and make fewer scrap purchases in November and December, but a reviving economy and subsequent demand for iron and steel could disrupt such plans.

Steel output in the U.S. the week ending Oct. 3 was more than 1.48 million tons, representing a 17.7 percent decrease from the comparable week in the previous year. The mill capacity rate for the week ending Oct. 3 was 66.6 percent compared with a 77.7 percent rate in the comparable week in 2019.

Also, the construction industry is reporting some favorable statistics, but trade associations in that sector point to an uneven recovery.

“Construction is becoming steadily more split between a robust residential component and generally stagnant private nonresidential and public construction activity,” says Ken Simonson, chief economist of the Associated General Contractors of America, based in Arlington, Virginia.