Ferrous Scrap: Sideways in July?

Steel Market Update (SMU) spoke with ferrous scrap executives about the outlook for the industry, not only looking at the upcoming negotiations with the steel mills for July shipments, but also the long-term view. The scrap industry is upbeat about its future as electric arc furnaces continue to take market share from integrated steel producers.

Like the rest of the steel industry, scrap dealers are expecting a strong steel market, bolstered by the expectation of a favorable Section 232 ruling from the Trump administration. The Section 232 decision is imminent and is already affecting offers for foreign steel for future delivery. The redistribution of steel sourcing could well drive the prices of flat rolled and other steel products higher.

The first four to five months of this year were stable for the ferrous scrap markets. Demand for scrap has been strong, said sources at the Bank of America Merrill Lynch dinner Monday evening in New York. There have been more international flows of steel scrap both in and out of the country. However, the number of export tons going into the domestic market is growing.

U.S. exports of scrap are down, and scrap imports are up, as mills consume more domestically, said one scrap dealer. He does not expect the typical seasonal downturn in demand for scrap in June and July. “Scrap prices will move sideways at worst, which is a victory for this time of year.”

Pig iron prices have dropped some $25 per metric ton recently, which could put downward pressure on scrap prices, say some in the scrap business.

One of our sources advised there have not yet been sales made to the domestic steel mills for July production. Negotiations will begin in earnest next week. Right now the expectation is for a sideways scrap market (prices to remain the same as June for July shipments).

Ferrous Scrap Pricing and Section 232

SMU received a note from John Harris of Aaristic Services Inc., a scrap expert and one of our speakers at this year’s SMU Steel Summit. He made the following comments about scrap and how Section 232 could impact domestic scrap numbers:

“My immediate reaction to Section 232 is ‘So What?’ I like the comment ‘Fake News.’ If you look at how steelmakers handle monthly scrap buys, Section 232 would be a minor issue. Most steel plants have scrap inventories of two weeks to a month, depending on raw materials’ delivery methods, while the steel sales side is more predicated on a longer time frame to local steel demand.

“The sales side needs to be more globally oriented as they have been spoiled and have become lethargic with continual regional sales. Actual NAFTA steel demand is probably 30 percent greater than full capacity production could produce. The rest of the world fully understands this situation and is constantly re-assessing in attempts to supply the shortfall.

“It’s reported that the U.S. uses only 3 percent of its steel for national defense. That would be a minimal effect for the Section 232, in my mind. But if 232 went into full-on implementation, then scrap prices would drop back to the $100/gt range, as the scrap export destinations would rebel by changing their source to other locations, such as China. It was reported over the last few weeks that China scrap exporters were looking to start shipping scrap to Turkey. Not if, but when, this happens, consider the ramifications. China could directly influence Turkey’s steel export pricing, as well as semis (billets) and scrap buying prices. They are already playing the game to increase their export sales by selling low-cost billets, which stops high-priced scrap buying in Turkey.

“Looking at the current situation in NAFTA and globally, expect a holding pattern going into July as Ramadan comes to an end and the EU goes into summer hibernation from mid-July until mid-August. Turkey has seen a slight upwards scrap cargo price movement above $280/mt CFR. NAFTA utilization rates are holding in the 74 to 76 percent range. Iron ore pricing is holding in the mid $50/mt CFR range and is expected to drop as more surplus iron ore comes on-line internationally. On the coal side, the cleanup has been completed after Cyclone Debbie, but the Chinese market is closing its doors to coal imports at some ports. Current pricing is holding around $150/mt CFR.”