Final Thoughts

Final Thoughts: June recycled metals market showdown

Written by Gabriella Vagnini

As we approach the June buy for ferrous scrap, the sentiment is leaning toward weaker prices, but the extent of the decline remains uncertain. Mill buyers are sensing an opportunity to capitalize on softer steel prices and weaker demand. With no urgency to buy, they believe prolonged negotiations could drive prices even lower. The cancellation of undelivered May orders and ongoing scrap shipments on the TBD platform set the stage for potential price drops.

Factors Supporting a $20/gt or More Decline:

  • Reduced demand due to mill outages in various regions
  • Adequate scrap flows and generation during this time of year
  • Softening steel mill order books

Factors Supporting a Less Than $20/gt Decline:

  • Steady ferrous scrap export prices within a $5/gt range over the last 60 days
  • Stable pig iron prices at $485/mt CFR U.S. ports
  • Potential decrease in scrap flows during summer months, accelerated by lower prices

Despite a generally bearish outlook for ferrous scrap, the market for non-ferrous scrap reveals a contrasting picture. A survey conducted by RMU showed 80% of traders expect non-ferrous scrap prices to rise, driven by strong investor interest and tight market conditions. Conversely, 100% of aluminum manufacturers predict a price decrease due to inventory build-ups and possible de-stocking cycles in China, highlighting significant market divergences.

The metals market is experiencing widespread declines, with copper dropping below $10,000 due to fund liquidation and mixed economic data from China and the U.S. The ISM manufacturing index fell to 48.7 in May, and April construction spending decreased by 0.1%. Additionally, OPEC’s extended production cuts have led to a significant drop in oil prices, raising concerns about global growth. These factors contribute to the broader selloff in metals and weaker U.S. equities.

Additionally, the RMU survey also indicates 88% believe export price improvements will not impact domestic prices, contrary to current trends. Respondents noted flat or declining obsolete scrap flows and decreasing demand, predicting future price drops. Concerns about future scrap shortages persist, with only 14% of respondents believing mills are pricing fairly.

Global steel production is expected to dip by 5% this year, further impacting scrap demand and pricing. U.S. scrap volumes have declined by 20%, highlighting market volatility. In Europe, scrap prices for #2 copper remain stable despite reduced volumes, driven by long-term contracts with no immediate capacity increases.

China’s withdrawal from the Western scrap market in May, due to rising LME and Comex prices, has led to increased availability for other buyers. This strategic move has caused traders to be wary of future deals with China, impacting the global scrap market dynamics.

In the U.S., despite a short squeeze, scrap demand remains strong, drawing down inventories. Copper demand from data centers continues to exceed expectations. The U.S. Midwest cathode premium is around 11c/lb, with potential spikes for urgent deliveries due to limited availability.

The widening of spreads and China’s pullback have placed U.S. buyers in a favorable position to dictate prices, particularly for #2 copper scrap. Current rates reflect this dynamic, with significant implications for both buyers and sellers in the global scrap market.

As we await further developments, the market remains in a state of flux, with various factors influencing prices and demand. The upcoming June monthly outlook will provide more insights into these trends and their potential impact on the industry.

Stay tuned to our website for the monthly outlook report.

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