Initial signs point to February ferrous price inconsistency

Initial signs point to February ferrous price inconsistency

Overseas buyers balk at paying at January’s prices, but melt shops in the U.S. are staying busy.

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January 22, 2020

Reports in late January have been indicating that overseas buyers are avoiding $300-per-ton United States ferrous scrap prices, which may lead to a price decline in the overall market in February. Healthy demand from domestic steelmakers in the U.S., however, could keep prices buoyant in areas away from major outbound seaports.

North American scrap recyclers were indicating to Recycling Today in the second and third weeks of January that overseas bids were failing to keep up with domestic mill buying prices. “There is too large of a gap between export and domestic prices this month,” one recycler said in mid-January, pointing to a $30 per ton difference in bids.

Subsequent trade and financial press reports are repeating that same theme. This week, India-based SteelMint has reported that Vietnam-based buyers of U.S. scrap are holding the line at around $295 per ton.

The London-based Kallanish Steel information service has been reporting that Turkish buyers are putting downward “pressure on ferrous scrap prices” globally. Jan. 22, Fastmarkets AMM provided additional reporting on that phenomenon, writing, “Turkish steel producers have continued to hold back from deep-sea ferrous scrap markets, expecting prices to go lower.”

Fastmarkets AMM goes on to report that one mid-January bulk cargo of No. 1 and No. 2 mixed heavy melting steel (HMS) booked to Turkey was in the $290 per metric ton range, down from an earlier January sale of $306 per metric ton.

Additional clues as to the direction of the ferrous scrap market can be detected in the finished steel market, where producers in the U.S. have introduced very few price increases, after having done so more regularly in December and early January.

Jan. 22, Kallanish Steel described U.S. rebar pricing as “holding steady” after a set of earlier increases, while SteelMint on that same day reported price drops for both rebar and ferrous scrap in Taiwan—another major buyer of exported U.S. scrap.

A reversal of sentiment also can be seen in the nascent scrap futures market tied to Nasdaq U.S. Midwest Shredded Steel Scrap Futures Prices.

According to pricing distributed by New Jersey-based World Steel Marketing Exchange (WSEM), the three-months forward April 2020 settlement price for shred that stood at $298 per ton Jan. 13 had slid to $275 per ton at the close of trading on Wednesday, Jan. 22.

Perhaps providing an important counterweight, especially for recyclers in the interior of America, is the steady-to-rising output of crude steel in the U.S. The Washington-based American Iron and Steel Institute (AISI) says in the week ending Jan. 18, domestic raw steel production was nearly 1.93 million tons, with a mill capacity rate of 82.7 percent.

The tonnage figure is up by 0.3 percent from the prior week and represents an impressive 3 percent more output versus the comparable week in 2019. In mid-January 2019, the mill capacity rate stood at 80.4 percent.

Steel industry analyst Becky E. Hites, based in the Atlanta area with Steel-Insights LLC, says her “heat map” set of macroeconomic indicators “increased to 79 percent positive in November (with 28 of the 33 indicators reported).”

That is up from 62 percent in October (with 29 indicators reported) and 72 percent in September (with 32 indicators reported). Indicators in Hites’ heat map include national construction, home sales, employment and inflation figures.

In the ferrous scrap sector, as the offers and counter-offers start being made during the February buying period, sellers may find the strength of the cards in their hands is very different depending on the geography of the transaction.