Downward pressure system

Statistics that measure the pulse of the U.S. economy continue to point to growth and forward momentum, but if the direction of ferrous scrap pricing is a leading indicator, some bumps may lay ahead.

Another interpretation of the ferrous market’s direction could be that the downward pressure is largely attributable to economic circumstances overseas, with the global market affecting demand for pricing in the scrap-surplus U.S.

No matter where recyclers wish to place the blame, American Metal Market (AMM) pricing for September resulted in the second straight month of a down market. Lack of strong demand from export markets certainly is playing a role, with AMM’s export index pricing showing particular weakness on the East Coast. Pricing there largely reflects ferrous scrap trade with Turkey, which has encountered turbulence in the second half of 2018.

Better news for scrap exporters finally may be coming from Turkey, as that nation’s government makes moves to support its economy and its steelmakers begin to feel more confident. In the meantime, however, domestic mills have been buying scrap at prices that take advantage of the weak export market.

Domestic mills enjoyed a second month of bidding for scrap at prices lower than the month before, with September price drops even steeper than those of August.

A scrap recycler in the Great Lakes region says mill buyers spent early September proposing prices from $20 to $30 less per ton for all grades—including busheling and other prime grades, which had held more of their value in August.

“There had been rumors of $30 drops across the board,” says the recycler regarding offers made by one large electric arc furnace (EAF) mill just before AMM settled its index prices. “Local shredder operators pushed back and got a $20 drop but gave up $25 on plate and structural,” he says.

Not all scrap shippers fared as well, he adds, saying, “The other mills [in the Great Lakes region] then came out similarly but with $30 per ton drops on MST (machine shop turnings) and HMS (heavy melting steel).” Ultimately, AMM Midwest index pricing in September fell from about $20 to $26 per ton, depending on the grade.

Lower prices have rippled down the scrap chain in late summer and early autumn. An East Coast recycler, whose company handles tin-plated steel cans and mixed demolition scrap, says September bids for his company’s scrap “were down about $18 per ton” on average compared with August.

Lower prices at the scale house and other purchase points have not greatly reduced the flow of scrap, according to some recyclers. “Flows are good; everyone is busy and there is no letup with inbound scrap from manufacturers,” the Great Lakes region recycler says. Although scale prices have drifted downward, peddlers and auto dismantlers have continued to sell material after the August downturn.

Mill demand remains healthy, the Great Lakes region recycler adds, adding, “One mill came back and asked for additional tons of busheling [in September], and I sell them a considerable amount.”

As reported in the September issue of Recycling Today, profit margins for EAF steel producers are uniformly healthy. “Mills continue to print money,” the Great Lakes recycler says.

Steelmakers have reported their own profitability figures in 2018, while the Washington-based American Iron and Steel Institute (AISI) continues to track aggregated production data. The AISI’s figures for the week ending Sept. 8 reveal an operating capacity rate that exceeded 80 percent.

Domestic raw steel output for the week reached nearly 1.88 million tons, with mills operating at an 80.2 percent capacity rate for the week. That compared with an output of 1.71 million tons in the comparable week in 2017, when the capacity rate was just 73.4 percent.

The impressive year-over-year 9.8 percent weekly output increase was matched by positive momentum compared with the week before. Production for the week ending Sept. 8 moved upward by 0.5 percent compared with the previous week, when the capacity rate of 79.8 percent was just below 80 percent.

Year-to-date output of nearly 64.9 million tons, according to AISI, has been achieved at an average capacity rate of 77.3 percent. That output level is up 4.1 percent from the 62.3 million tons made during the same period last year, when the average capacity rate was 74.4 percent.

Department of Commerce and Census Bureau figures collected and summarized by AISI show domestic mills are benefitting from a reduction in finished and semifinished steel imports. According to AISI, steel import permit applications for the month of August totaled slightly less than 2.95 million tons, representing an 8 percent decrease from the 3.2 million permitted tons recorded in July.

In the first seven months 2018—before the August drop-off—Census Bureau statistics indicate that year-to-date total steel imports of less than 20.9 million tons represent a 10.1 percent decline compared with the same period in 2017, according to AISI.

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.