An uneven rally

The beleaguered steel industry in the United States, citing help it has received staving off a tide of imports, has finally been able to raise some prices in the second quarter of 2016, helping lift scrap prices along with it.

After price spikes of some $50 per ton in April, the early May buying period brought with it another $20-to-$30-per-ton rise in prices, as measured by the American Metal Market (AMM) price survey.

The price rally has been met with a combination of relief and uncertainty by many recyclers, and the uncertainty moved closer to the forefront in mid-May when the export market off the West Coast balked at taking part in the rally.

According to an AMM report, as mills in the Midwest and Turkish buyers off the East Coast were paying from $250 to $300 per ton for scrap in early May, Taiwanese buyers acted in concert to resist pricing above $250.

A recycler quoted by AMM says one Taiwanese broker in particular appears to have canceled several orders after being convinced he would be unable to resell the scrap at a good price once it reached the Asian market.

By mid-May, that left a price imbalance in the U.S. scrap market, as the AMM East Coast Ferrous Scrap Export Index figure for mixed No. 1 and No. 2 heavy melting steel (HMS) stood at $299 per ton, while the West Coast figure remained at $219.

AMM’s Midwest pricing occupied a middle ground, with HMS priced at $251 per ton, shredded scrap fetching $276 and the prompt No. 1 busheling grade selling for an average of $275.

A scrap recycler in the Mid-Atlantic states says he is glad to be near the East Coast export markets right now. “The domestic May market followed the export market, but few [bids] were up as much as the export ones.”

A recycler operating in the Gulf Coast region likewise expressed appreciation for containerized ferrous scrap buyers from India and Pakistan, often operators of smaller melt shops who he says have become steady customers.

However, symptomatic of the uneasiness that is commonly expressed about the spring 2016 rally, the East Coast recycler says of buying activity in the second week of May, “Turkey and India seem to have peaked and [their interest] is coming off in the last three or four days.”

Regarding supply, recyclers report much needed boosts in April and early May, though some also express the sentiment that a prolonged slump might have knocked out a few of their competitors, which they would have welcomed.

“[Scrap] flows are better, but price competition due to excess capacity in our market is still strong.” – eastern U.S. recycler

“Flows are better,” says the eastern U.S. recycler, “but price competition due to excess capacity in our market is still strong. We buy less than we could because we don’t compete in the highest volume/lowest margin crushed car market.”

The current output and the future of China’s steel industry remain the center of attention for steelmakers and ferrous scrap recyclers around the world.

As trade doors continue to close to Chinese steel exports, the country’s policymakers are scrambling to determine to what extent they can stimulate the economy to absorb a greater percentage of the 800 million metric tons of steel produced there.

An estimated two-thirds of China’s steel production is in the hands of state-owned enterprises (SOEs), and thus far Chinese Communist Party officials have seemed reluctant to idle mills or enact mass workforce layoffs at the SOEs.

Economists and metals industry analysts are churning out an abundance of scenarios about where China’s economy and steel industry will be headed in 2016 and beyond.

In mid-May, China’s People’s Daily published a transcript from President Xi Jinping that some interpreted as paving the way for capacity cuts in traditionally state-owned sectors such as steel, coal and cement production.

Xi wrote in part that China could not rely on “stimulating domestic demand to address structural problems such as overcapacity.” Overcapacity has been the label applied to China’s steel industry for several years.

Steelmakers in the rest of the world have made clear their desire to see China bring its output of steel closer in line to its domestic demand, with organizations like the American Iron & Steel Institute (AISI) questioning the country’s market economy status in the face of such prevalent state ownership of assets.

In late April, the United States Steel Corp. (U.S. Steel), Pittsburgh, filed a complaint with the U.S. International Trade Commission (ITC) against several large Chinese steel producers and their distributors. The complaint asks the ITC to initiate an investigation under Section 337 of the Tariff Act of 1930 and alleges what U.S. Steel calls “illegal unfair methods of competition.”

The complaint accuses the Chinese steel producers and distributors of an illegal conspiracy to fix prices, the theft of trade secrets and the circumvention of trade duties by false labeling.

Additional RMDAS (Raw Material Data Aggregation Service) pricing from Pittsburgh-based Management Science Associates (MSA) is available on the Recycling Today website at www.RecyclingToday.com/RMDAS.

The American Metal Market (AMM) Midwest Ferrous Scrap Index is calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The AMM Scrap Index includes material that will be delivered within 30 days to the mill. Spot business included after the 10th of the month will not be included. The AMM Ferrous Scrap Export Indices are calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The detailed methodology is available at www.amm.com/pricing/methodology. *FOB New York, in metric tons; **FOB Los Angeles, in metric tons.