The market makes counter-inflationary move

Inflation has been a leading cause of concern for executives, investors and central banks alike. In early May, the ferrous scrap market—considered by some a leading indicator—sent a counter-inflationary signal to the basic materials market.

After two months of sometimes sharp upward movement, buyers in the domestic market and overseas showed an unwillingness to buy scrap at anything other than a lower price in early May.

Several sources in mid- and late-April predicted the downward direction as they read the tea leaves regarding booming across-the-scale supplies combined with a pullback by overseas buyers.

Domestic mills—which largely have healthy order books—saw it as an opportunity to offer lower bids to find sellers willing to ship material at rates around $75 per ton lower in early May compared with April.

“April saw good supply and weaker demand, especially for cut grades, and a weaker export market.” – A scrap processor in the Southeast

A scrap processor in the Southeast says, “April saw good supply and weaker demand, especially for cut grades, and a weaker export market.” Before the May buying period had started, he says, “We feel the market will be down $40 to $50 per ton next month on obsoletes and level on primes.”

By May 10, Argus Media was reporting that bids on all three main grades of scrap (prime, shredded and heavy melting steel, or HMS) were down from $75 per ton to as much as $100 in large Midwest markets. Not all processors wished to sell at that price, Argus says.

Price tracking by Davis Index revealed similar trends. By May 11, it was reporting processors had “gradually accepted these lower priced settlements due to ample supply and waning exports.”

The export market was affected in part by Labor Day or May Day holidays in several countries that coincided with the Eid (end of Ramadan) holiday in Turkey and several other export destinations.

Postholiday, though, buyers in Turkey remained largely absent from the market, or they offered prices of at least $30 per ton less compared with April pricing, according to Davis Index.

The Turkish absence in the market could indicate mills there have been able to again source slabs, billets and pig iron supplies that had been disrupted by Russia’s invasion of Ukraine and subsequent sanctions.

“The majority of free, or open market, pig iron produced comes from Ukraine and Russia,” the Southeast recycler says. “Many rolling mills [globally] also counted on those two countries to provide billet and finished steel. This has shifted demand on Turkey and other Mediterranean steel producers in a positive way.”

U.S. scrap processors and exporters will be anxious to see if the early May lack in demand from Turkey was tied to the end of this temporary shift in metallics movements, to a reluctance by Turkish mills to buy U.S. scrap at its peak price or to an economic slowdown in the Middle East and Central Asian region served by Turkish mills.

U.S. steel output seems to have lost momentum, based on figures gathered by the American Iron & Steel Institute (AISI), Washington.

In the first full week of May, steel production of 1.78 million tons was down 3.1 percent from the same week in 2021. Compared with the previous week of this year, output increased, though just by 0.1 percent.

Automotive sales figures indicate activity in that sector has stalled somewhat. Construction statistics continue to point to an active market, though trade groups continue to worry about rising materials and labor costs.

Globally, steel output in the more than 60 nations that report to the World Steel Association (Worldsteel), Brussels, amounted to 161 million metric tons in March, representing a 5.8 percent decrease compared with March 2021.

Nine of the world’s 10 largest steel-producing nations made less steel in March of this year compared with last March, according to Worldsteel. U.S. output was down 0.4 percent, and India was the sole outlier, with a 4.4 percent increase. In April, Worldsteel released its “Short Range Outlook” for 2022 and 2023. Despite the March declines, it forecasts steel demand will grow by 0.4 percent this year, reaching 1.84 billion metric tons.

For 2023, the group says the sector will see additional growth of 2.2 percent, reaching 1.88 billion metric tons. However, it says the war in Ukraine creates uncertainty.

China doesn’t buy much U.S. ferrous scrap, but its drop in output this year has become noteworthy, in part because it lately has made half the world’s steel and because what happens with its economy will create global ripple effects.