Supply constraints keep ferrous pricing aloft

Fall has been an apt name for that season in several previous years in the ferrous scrap market. The terms “October surprise” and “November surprise” have one meaning in the political world, but for scrap processors, they can refer to an unwelcome plunge in prices.

Both the October and the early November buying periods this year came and went without an unpleasant surprise, with Fastmarkets AMM calculating flat pricing in October and $6 to $10 per ton increases in November based on its surveys of transactions.

The flatness of October’s values was confirmed by the Raw Material Data Aggregation Service (RMDAS) pricing from Pittsburgh-based Management Science Associates Inc. (MSA). Remarkably, MSA’s collected data showed national averages for all three major grades (prompt, shredded and heavy melting steel, or HMS) that did not move by even $1.

It is the first time since RMDAS began publishing figures in 2006 that pricing for all three major grades were completely static. “In the past, there may have been a ‘zero’ change on one of the [grades], but not all three,” says MSA Senior Account Manager Jeralyn Brown. “We round to the nearest dollar (weighted average price), and things just worked out that way,” she adds.

This year, recyclers concerned about a late-arriving December surprise might not have those fears realized, according to early indications. Fastmarkets AMM has reported a mid-November export transaction that saw an overseas bidder paying an additional $9 per metric tons for scrap.

A veteran New York-based trader and consultant contacted by Recycling Today also does not see a December surprise looming, and he points to diminishing supply. “October and November scrap arisings in the United States are below 2019 levels,” says Nathan Fruchter of Idoru Trading. “Every recycler I speak to has the same complaint: ‘Less material is coming into the yard.’”

The reduction in manufacturing, construction and demolition activity in several states, related to subsequent waves of COVID-19, has been enough to affect tonnage available to export buyers who purchase key “swing tons” that influence pricing.

Fruchter says, “The writing is on the wall when we see less bulk cargo available to the export markets. December already feels tight, and the price increases we have seen in the last 10 days on Turkish sales prove just that. Make no mistake, supply is tight out there.” 

While parts of the U.S. and much of Europe are introducing restrictions to combat a rising COVID-19 caseload, the health situation in Asia has improved, and governments there are spending on steel-intensive infrastructure as economic stimulus measures.

That too, Fruchter says, will support higher prices. “Global steel production is up, and China is a big contributor,” he comments. That nation “reopened early” after its bout with COVID-19, Fruchter adds, “and had an enormous demand for steel, which saw to it that the Turkish mills had great order books.”

He concludes, “This is why scrap prices never really seriously collapsed like some other commodities did. We saw one quick but big drop in scrap prices in late March as a result of the initial ‘corona shock,’ and then it moved back up gradually, with a smaller second dip in late June.”

Historically, the flatness of October pricing this year and the minor move upward in November stands in contrast to several previous years. In October of 2019, prices fell an average of $40 per ton, and that was after steep declines had already occurred in June and July last year.

In October 2017, AMM pricing indices pointed to a more than $40 per ton drop for prompt grades shipped to domestic mills, while shredded scrap in the domestic market dropped nearly $30 per ton.

Most processors also would prefer not to think back to October 2015, when pricing fell by $30 to $50 per ton, and all three benchmark AMM Midwest grades fell below $300 per ton. Prices fell yet more that year in November.