Control amidst the chaos

The commodities markets and the wider geopolitical world produced no shortage of turmoil in late February and early March. By that measure, the U.S. ferrous scrap market and steel industry seemed like relative safe-havens.

Steel production, as measured by the Washington-based American Iron and Steel Institute (AISI), has stayed on an even keel throughout 2022, providing a steady market for many grades of ferrous scrap.

Export markets remain subject to volatile conditions, which are likely to grow as the world’s metals producers and traders navigate a vastly changed landscape, with some Russian producers forced to find new trading partners willing to attempt workarounds to sanctions.

For processors with grave concerns about how to adjust scale pricing for extremely volatile nonferrous metals, the steady-to-rising ferrous market presented a more manageable landscape in the weeks after Russia’s invasion of Ukraine on Feb. 24.

Russia’s invasion of Ukraine is creating direct and side effects that still are rippling into new parts of the world as of mid-March.

In mid-March, Davis Index reported a delivery of shredded scrap to a Southeast mill at just under $500 per ton. That represents a 6 percent increase from the average price mills in that region paid in February, according to transaction pricing tracked by the Raw Material Data Aggregation Service (RMDAS) of Management Science Associates Inc. (MSA), Pittsburgh.

Although early 2022 witnessed a narrowing of the gap between the lower value of obsolete grades (including shred) and pricier busheling and prompt grades, a mid-March transaction Davis Index logged could demonstrate a return to a wider spread.

According to the metals industry information service provider, a consumer in the Chicago region paid $688 per ton for busheling on the spot market March 10. That represents a $189 difference from the price paid for shredded by a mill in the Southeast.

Even this level of volatility, however, might seem mild compared with events in the nonferrous markets, where shredder operators and other processors handling nonferrous metals are facing questions about pricing.

Nickel pricing on the London Metal Exchange (LME) experienced a wild ride in March. Processors with a presence in the stainless steel sector saw LME nickel trading halt entirely March 8-15 in a process that also included the “unwinding” of trades that had been made.

The furor in the markets has much to do with Russia and Ukraine, though the LME nickel turmoil also reportedly includes China-based stainless producer Tsingshan Steel as a key player. That firm reportedly finds itself on the wrong side of several high-volume forward trades.

In terms of carbon steel and ferrous scrap, Russia’s invasion of Ukraine is creating direct and side effects that still are rippling into new parts of the world as of mid-March.

The scaling back of steel production in Ukraine occurred swiftly. ArcelorMittal confirmed March 3 it had “taken the decision to idle its steelmaking operations in Kryvyi Rih, Ukraine.” Most other metals production in that nation also has been scaled back or halted, according to media reports.

Now, the curtailment of natural gas shipments to Western Europe has led to mill closures. AP has reported that Italy’s Acciaierie Venete shut three of its steel mills when energy prices “spiked to 10 times above normal.” The wire service quotes an executive with the firm as saying, “Never, ever has this happened that we had to shut down ovens.”

The Russian attack on Ukraine and the growing consensus that China’s steel-intensive apartment tower construction boom has met an abrupt braking process likely have steel producers and scrap processors in the U.S. glad to be part of an industry with a healthy level of self-containment.

Within the U.S., in the week ending March 5, 1.76 million net tons of steel were produced, according to AISI, with the mill capability utilization rate (capacity rate) at exactly 80 percent. The tonnage figure is up 0.4 percent from the previous week ending Feb. 26, when production was 1.75 million net tons and the capacity rate was 79.7 percent.

Output also looks similar to what was happening in the steel industry in America one year ago. Production was 1.76 million net tons in the week ending March 5, 2021, while the mill capacity rate at that time was 77.7 percent. The current week’s production represents a 0.1 percent increase from the same period one year ago.

Year-end data from the U.S. Census Bureau show that some 17.9 million metric tons of ferrous scrap were exported in 2021. Thus, events overseas remain vitally important to domestic processors in terms of trading patterns and pricing.