Scrap Prices Mixed in Unusual August

Ferrous scrap prices for August were not as weak as expected, but varied widely by region. Prices on the East Coast and in the Southeast were up $30/GT due to strong export demand, while prices in other parts of the country traded sideways for obsolete grades and down $20-30 for primes, report Steel Market Update sources.

“The initial steel mill narrative for the August ferrous trade was that prime grades would again prove materially weaker due to oversupply and that obsoletes couldn’t be much stronger from July levels because of the prime weakness. Those turned out to be generally erroneous assumptions” said one SMU source.

Scrap demand from overseas via both bulk shipments and containers is markedly stronger and not finished rising. The latest bulk 80/20 sales ex-USEC equivalent are right around $285/MT cif Turkey, and will certainly climb into the $290s soon. Accordingly, there is a lot of obsolete scrap leaving and slated to leave the U.S. on both coasts over the next 60 days. These rising export prices forced the US mills to reassess their buying strategies for August, he explained.

Obsolete grades in the eastern and southern U.S. were generally up $25-$30/GT. Shredded in those regions was priced in the $275/GT range, plus or minus. West of the Appalachians the market was considerably weaker, and mills were reluctant to pay the considerably higher prices dealers demanded for commitments. With that said, prime scrap grades were weaker from July, but probably only by $10-$20/GT in the Midwest with many quiet deals done at close to sideways levels, he said.

“Looking forward, we see continued strength into late-August and early September. Flows into dealer yards remain weak, and while price increases will pull some more scrap out of the woodwork, one month will not change the overall market dynamic. Downside risks are the Turkish economy and U.S. steel demand, which has yet to materially improve,” he added.     

Commented another dealer in the Northeast: “I think we are seeing an inflection point in the domestic market brought on by strong international pricing. The export market, which is being driven by exceptional demand in China, continues to rise with expectations that this trend will continue through October.

“Domestically, demand is slowly recovering and doing so in an uneven and regional pattern. Electric furnace mills are aggressively trying to take market share from old school integrated mills by keeping finished steel prices very low. As a result, there is huge pressure on the steel mills to maintain margins by dropping raw material costs. The expectation for the balance of the year is a rocky path, but demand will trend up. There is no indication that September will bring a big jump in domestic demand, just incremental improvements.

“So, in August we have the combining of these two markets, which has resulted in mills in the East and South raising prices and mills to the West and local buying at sideways for obsoletes and down $20-30 on primes,” he reported.

Added another scrap executive describing the unusual price shifts in August: “Rarely do we see regional markets differ to the extent they will in August. Mills in the Southeast are paying $260-275 for shred compared to $240-245 in Ohio and points west. These differences in prices should level out in future months. The export market has already defined higher prices into September and I feel the domestic market will need to catch up in the coming months. After consuming much of the excess prime scrap through July and August, prices for these grades should bottom and begin moving higher in September.”

Pig Iron Market

“There has been little interest in pig iron in the U.S. with prime scrap so weak and steel demand being off,” commented another source. “But world pig iron pricing has steadily improved on the strength of Chinese demand.  Those prices have reached as high as $358/MT CFR China. Based on this, the price equivalent for U.S. delivery is about $335-340/MT CFR Nola/USEC. Last month, one CIS cargo traded at $330/MT NOLA ($350-360/GT delivered to the mill).  There have been no spot sales since then, despite some smaller cargoes from Northern Brazil that are on formula contract at prices slightly less than $330/MT. 

“If or when, the U.S. scrap market strengthens to any appreciable extent and U.S. steel demand starts to recover, the mills will have to start buying pig iron again and prices will be much higher in relation to scrap than they are even now,” he said.