Global scrap prices likely to end Q1 on a weak note

Scrap prices are expected to remain mostly stable m/m across key markets in March despite improving demand, as supply will be available. A China stimulus announcement in early March will strongly influence Asian steel longs and scrap prices.

In the markets outside Asia, scrap supply is expected to be readily available in the coming month as weather conditions improve for scrap generation and collection. Meanwhile, restocking demand will pick up as steel mills raise operating rates to cater to higher construction steel demand, particularly in Europe and Russia. Scrap prices will, thus, stay rangebound around current levels as upside potential will be limited by ample supply.

In Asia, scrap buying interest is expected to improve as market activity regains strength after the holidays, although Chinese domestic scrap demand may not see substantial recovery before the lantern festival (during 24– 25 February). Elevated steel inventories may continue to pressure steel prices and will keep scrap prices rangebound around current levels. However, the volatility in sea freight rates and delayed shipments from Europe to Asia due to disruptions in the Red Sea represent further upside risks for Japanese export prices, as other sources of material to the Asian region will be limited and potentially more expensive.

Moreover, a larger than expected economic stimulus announcement during the government’s “Two Sessions” meeting in China (during 4–5 March) has the potential to trigger speculative steel and scrap buying. Last year in March, Chinese scrap consumption grew– as it typically does– by 16% m/m. This was despite little expectation by the market of a stimulus package for steel-related sectors to come out of last year’s “Two Sessions” meeting (n.b. there ended up being a mild stimulus package). Expectations of stimulus this year are greater than last year, and this may lead to greater steel and scrap buying activity.

Pig iron prices in the USA are expected to reduce as Brazilian supply improves, while buying interest remains thin as buyers have sufficient inventory at hand. Moreover, Brazilian domestic prices will face downward pressure as spread with U.S. import prices has reached the lower band of the historical range. We expect Brazil to remain the main supplier to the U.S. market in the near term, as Ukrainian supply is yet to prove reliable. Pig iron and HBI prices in Europe are likely to trend upwards in the coming months as demand improves and buyers gradually shift away from Russian supplies.