Ferrous Scrap Surprises to the Low Side in October

Ferrous scrap prices for October traded sideways to slightly lower in most parts of the country, surprising the experts who had been expecting scrap to move higher for another month.

“October sales have brought stable pricing for the majority in the Ohio Valley and Midwest. There seems to be a balance between supply and demand as both sellers and buyers view the fourth quarter as flat,” said a dealer in the Northeast. “Expectations for higher prices in October were diminished as export prices dropped throughout September and into the first week of October. Large national consumers delayed buying, signaling to the marketplace there was less urgency to buy and potentially more tons available.”

Generally speaking, prices along the East Coast, in the Southeast and the river markets declined by $10/GT on all grades, he added. “These regions were the highest priced in the country and now are more in line with the others on a delivered basis. These regions are more closely tied with the dropping export market.”

He estimates representative prices in the Ohio Valley as $285-300 for shredded scrap, $295-310 for busheling, $265 for HMS, $280 for P/S and $195 for turnings.

Another Steel Market Update source described the October ferrous trade as “all over the map” with prices ranging from sideways to a bit softer for some grades depending on the region. Two main themes impacted the trade: weaker export demand and pricing, and a better supply/demand balance compared to 30 days ago.

Midwest prime and shred traded largely sideways from September, while Eastern and Southern shred traded softer with prices down $5-10/GT. Cut grades in nearly all areas except the Northeast, which is heavily influenced by the export trade, moved sideways from last month, though a few Northeast mills and export docks were lower by $10/GT. Shred and prime price levels are now closer across all regions than they had been in August and September, he said.

The latest export sale from the U.S. on Oct. 7 traded at $285/MT CIF for 80/20, while shredded traded at $290/MT. That places delivered prices for U.S. domestic shred and shred delivered to Turkey within about $5/GT of each other. 

“The export market has weakened by about $20/GT since early-September due to slightly better scrap supply and falling rebar prices in Asia. The export market does not have much more room to fall with the week-long Chinese holiday ending and cargos needed for November trading,” he said.  “We also saw U.S. scrap supply improve during September, though so long as many states are under some form of lockdown I’m skeptical that supply is really very deep.”

Following the price increase for shredder scrap in August and September, many scrapped vehicles came into shredders. Now that shredders have dropped their prices on the East Coast following the October shred price decline, some of that vehicle supply may dry up, he noted. Prime scrap supply also remains good as manufacturing continues to return to pre-pandemic levels. Because there are relatively few demolition projects, cut grade supply remains tighter and less in balance than shred.

“Looking forward, we anticipate relatively stable prices in November, especially if export demand improves and inflows slow in reaction to the October price declines,” said the scrap exec. “Mills may try to push the market lower next month, which is what they normally do, but I suspect they will find considerably less material available for sale in that case, with dealers likely anticipating an improving market into December and January, especially if domestic HRC demand remains firm.”  

“Now that the market has traded sideways across the board throughout most districts, the press has characterized this as weakness rather than the mills accepting the fact that the scrap flows just aren’t what they used to be and with winter coming won’t improve,” commented another source. “For the rest of the year, things will start to track on a seasonal format. What we should expect to see is the scrap price flattening out and trading sideways, perhaps slightly down in November and December. This will be followed by mid-month strengthening in December with January being much stronger. Of course, COVID-19 is a wild card, but it should not have the effect of negatively impacting scrap prices unless things get really severe.”

Pig Iron Market

Another aspect for consideration is pig iron, which U.S. mills import regularly. The EAF sheet mills need pig iron along with DRI/HBI to dilute the copper levels in purchased scrap.

Explained one expert to SMU: “In the past year, China has emerged as a consistent, high-volume buyer of pig iron from all sources. This has hampered the procurement efforts of U.S. mills to the point where they finally had to buy pig iron at international market prices that were stratospherically higher than domestic low-residual scrap grades. Now they see China perhaps backing off and are again playing the waiting game to see if prices can fall. However, there is risk in this strategy since the pig iron market is basically sold out through year end. This means December/January shipment is all that’s available, so pig iron bought at that time won’t arrive at mill works until sometime in February at the earliest. This can put upward pressure on low-residual grades during this time. And if China decides to restock, it will aggravate matters further.”