Scrap Prices to Gain Support from Tight Supplies in May

Written by Tim Triplett

“The scrap market is almost certainly going to go sideways if not higher in May due to the extreme supply squeeze we have seen this month,” said CRU Senior Analyst Ryan McKinley.

Ferrous scrap prices weakened for much of the first quarter, punctuated by a $30-50 per ton decrease in April. But May scrap prices are expected to level out due to the limited supplies and demand that may strengthen a bit from April levels.

The ferrous scrap market in May will certainly not be lower than it was in April, said one Steel Market Update source. Supply of both obsolete and prime scrap is extremely tight, the result of more than a month of scrap yard and manufacturing plant closures due to the coronavirus. “The breadth of this supply disruption is completely unprecedented, and for the time being the supply constraints are the bigger factors driving the market as opposed to reduced demand.” 

Several other factors are influencing the market, he noted, including stronger export prices, up $30-40 per ton versus early-April levels; Nucor’s shuttering of its DRI plants in Louisiana and Trinidad; and the idling of a large chunk of integrated mill capacity.

“Scrap yards that shut down in late-March and early-April should begin to reopen soon. At some point in May, manufacturing plants will begin to reopen, too. That will help improve end demand for steel. By early-June, the scrap supply situation could be a little better than today and will continue to improve into the summer. In the meantime, I expect prime scrap prices to gain back at least what they gave up in April and possibly more. Obsolete grades may well regain most of what they lost last month, too,” said the scrap executive.

Because supplies are so tight, mills that need to buy scrap for May will have to pay up for material, regardless of the grade,” said a dealer in the Northeast. He pointed to prices quoted today by one large midwestern mill as up $30 for shredded and up $40 for busheling. “Even at these levels not many are selling because they either anticipate having no scrap to sell or feel it will take more than up $30-40 to purchase.”

He added: “The inbound pipeline to scrap yards has been decimated by industrial plants shutting down, as well as the majority of the scrap food chain closing its retail doors. It will take multiple months of stronger pricing to get back to ‘normal’ scrap flows.”

Export continues to be the best alternative for coastal scrap yards, putting more pressure on domestic mills to raise prices, said one source.

It has become apparent the U.S. mills that are still running and need scrap are making deals on available tonnages before month’s end, concurred another steel exec. “They are extremely worried about getting enough material to keep an ample inventory. Their main concern is about busheling and other low-residual grades, and they have already given back what they foolishly took from the trade in April.”

Once the auto plants restart, the EAF share of that market may rise with the banking or closure of a significant portion of existing BF capacity. But where will these EAF producers procure enough industrial low-residual scrap and/or virgin iron units to produce this quality of coils? The HBI plants owned by Nucor are not operating. Most mills have not bought pig iron in two months, and even if they start now, July shipment is all that’s available since the Chinese have bought 800,000 MT from Brazil, Russia and Ukraine during that time. The pig iron prices available to the U.S. today equate to $300-315/MT CFR based on prices paid by China. That’s $360-70/GT delivered to the mill.

“I’d say busheling has room to rise. And when things do come back, increases in scrap and iron prices will spread like the virus,” he added.

Firming scrap prices could lend support to declining finished steel prices. Steel Market Update puts the current benchmark price for hot rolled at $460 per ton, down from $580 at the beginning of March.

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