No change to fundamentals

Suez Canal disruption keeps scrap local in Europe

There has been an increase in freight rates and shipping times as a result of hostilities in the Red Sea which has forced shipments between Europe, the Middle East and Asia to take longer routes around South Africa. This has led to improved availability of scrap in the European market as sellers in the region have opted to sell more material locally rather than export. However, there has been no shift in market fundamentals. Market participants continue to note that inflows into scrap yards remain subdued, as a result of lower industrial activity. Demand for higher grade (#1) scrap remains very low due to poor performance amongst the brass mills, current offerings from scrap dealers are double typical levels. Smelter demand, at least in Northen Europe, has been stable and their consumption is expected to be flat or improved this year. Quotations for refinery grade scrap (#2) were slightly wider for December, we assess this at €345 /t.

China buying heavily in the US

While there has been no shift in the local fundamentals of the US scrap market recently, contacts have noted strong buying from Asia, particularly China.
China quotations for refinery-grade material are very competitive, between 22-25s ¢/lb, while Asia ex. China countries that re-export material to China are buying at 32 ¢/lb (FAS). Increased buying from China is likely due to stock building in preparation for the CNY holiday, in early February. As for domestic consumers, buying has between 33-35 ¢/lb, with most business being concluded on the latter side of the range.

Exports to China, while competitive, are less favourable due to their stringent specifications, but this hasn’t stopped volumes from the US to China increasing 36.4% y/y, or 69,230 t, from January to October. Overall US exports of scrap were down 4.8% y/y during the same period. We believe this could be due to a combination of new recycling capacity, including the Ames JV, between Prime Materials Recovery and Cunext, and weak demand in Europe and Northeast Asia. However, talk of improved exports in November and December suggests that US scrap export growth for 2023 could end the year flat or positive on a year-on-year basis.

We assess US discounts for barebright, #1 and #2 grades at 7 ¢/lb, 13 ¢/lb, and 34 ¢/lb respectively.