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Ferrous scrap dealers face the weakest prices seen in years.

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June 26, 2019

With demand slowing down and supply piling up, ferrous scrap dealers are facing the weakest prices they’ve seen in years and anticipating values will fall further before hitting a bottom.

Many grades on the East Coast have seen prices drop by about $90 in 90 days, a trend that dealers say they don’t see slowing down as July approaches.

Domestic No. 1 busheling prices out of Chicago, as calculated by Fastmarkets AMM, dropped $30 from May to reach $285 per ton as of June 7. Many other grades in the region also dropped about $30 per ton, including No. 1 heavy melt (HMS), which settled at $230 in June, and shredded scrap, which fell to $262.

“Once it came out that a lot of mills would be reducing their buys, it became obvious it was going to be difficult for everyone to place their tons.” – a Michigan scrap dealer

By way of contrast, in March, No. 1 busheling sold for $375, No. 1 HMS was $315 and shredded scrap sold for $345 per ton.

Turnings have been a particular pain point in the Midwest, dropping $40 per ton in Chicago—a 50 percent loss as compared with May. “The turnings come down to both supply and quality issues,” says a scrap dealer from Michigan. “Turning [quality] has always been something people have taken advantage of.”

U.S. steel mills have enjoyed healthy stocks as of late thanks to low scrap pricing. Ample supply as well as slower demand from the automotive and construction sectors and scheduled summer mill outages have spelled trouble for scrap dealers trying to move material domestically.

Scrap dealers say lead purchasing time for steel mills has fallen to just two weeks, in some cases, compared with typical four-to-six-week levels.

The slowdown is evident in steel mills’ capability utilization rates, which have crept downward over the past few weeks. The American Iron and Steel Institute (AISI) of Washington reports that for the week ending June 8, mills’ capability utilization rate was 80.6 percent—down 0.8 percent from the previous week, and close to slipping beneath the 80 percent goal set by the U.S. Department of Commerce ahead of implementation of the Section 232 tariffs last year.

“Once it came out that a lot of mills would be reducing their buys, it became obvious it was going to be difficult for everyone to place their tons,” says the scrap dealer from Michigan. “That seems to have spread throughout the whole Midwest. I think it caught everybody by surprise.”

Mill demand is likely to remain slow through July as outages continue. U.S. Steel Corp. of Pittsburgh, for example, is planning an outage at its B2 blast furnace at Great Lakes Works in Michigan for a $25 million project to “replace and improve our gas cleaning system to further reduce emissions,” says a spokesperson with the company. She declines to provide exact dates for the outage.

Meanwhile, ferrous scrap prices in the South fared better than in the Midwest in June, though prices for many grades still dipped $20.

Exporters had better luck in June moving their material than their domestic counterparts. Export prices for some grades enjoyed a $10 boost from May, while HMS 1 and 2 pricing from the West Coast remained unchanged.

While scrap prices increased, importers still took advantage of the comparatively low values in June.

“If you were looking to buy bulk cargo in June, you would not find it,” says a scrap trader based in New York. “It was sold out.”

Some scrap dealers say they are hoping export markets will continue to absorb the oversupply heading into July. Turkey has signaled a promising start to this.

Coming off the month-long holiday of Ramadan, Turkish buyers bought scrap cargoes to fuel their mills in early June. Fastmarkets AMM reports that two steel mills in that country purchased three scrap cargoes with 90,000 tons of HMS 1 and 2, shredded scrap and bonus-grade scrap for shipment in July. Another mill also made a large purchase in June, the outlet reports, though the tonnage breakdown was not disclosed.

The ferrous scrap trader out of New York estimates the trend in Turkey will continue as buyers take advantage of low U.S. prices, adding that “more tonnage in the domestic market creates [a] weak atmosphere and has [the] potential to put pressure on export prices.”

Tariff talk also might affect export pricing in the upcoming weeks as President Trump continues to use them as negotiating tools. “Any talk of possible rollback of tariffs could create less demand here and increased imports,” the New York trader says.

Despite the market’s fickleness, some hope is on the horizon for ferrous scrap exporters. According to forecasts prepared by Steven Vercammen, who works in Belgium for McKinsey & Co., if global electric arc furnace market share grows another 12 percent, scrap demand would rise from its current annual level of 640 million metric tons to more than 1 billion metric tons.