A seller’s market, for now

Wintertime supplies of ferrous scrap appeared to lag behind demand as 2020 calendars claimed their space on the wall. The price of ferrous scrap purchased by domestic buyers in particular rose in late December and early January, with U.S. mill prices gaining about $30 per ton in value during the buying period.

Those $30 per ton gains in Midwest mill sales, as tracked by Fastmarkets AMM surveyed pricing, were not matched by overseas buyers, with bids on the East Coast remaining relatively stagnant.

Two eastern United States-based processors describe the early January market as active, but they add that overseas buyers are unwilling to pay the same prices domestic buyers are paying. “Abundant [export] inquiries, but prices lag the strong domestic bids,” is how a recycler in the mid-Atlantic region portrays the market as of early January.

A scrap trader based in the Southeast says overseas shipments from that region were unlikely in January because of the gap between domestic and overseas bids.

“There is too large of a gap between export and domestic prices this month.” – a recycler based in the Southeast, regarding the drop in export activity

He adds that he doesn’t believe any East Coast export buying has moved into the Southeast or Gulf Coast regions. “There is too large of a gap between export and domestic prices this month,” he continues, noting some mills in the southeastern U.S. were paying $310 per ton or more, while export bids seemed to top out at $280 per ton.

The ongoing, limited flow of obsolete scrap into shredder yards—despite the November and December price increases—is evident in the value of ferrous shred staying even with prompt grades.

For the second month in a row, Fastmarkets AMM Midwest Index pricing has shown ferrous shred selling within 50 cents per ton of prompt grades, on average. (In December, ferrous shred actually carried 33 cents per ton more in value.)

Transaction pricing collected by the Raw Material Data Aggregation Service (RMDAS) of Management Science Associates (MSA) Inc. of Pittsburgh in late November and the first 20 days of December 2019, however, does not show this same price parity between shredded and prompt grades.

In the RMDAS data, mills purchased prompt grades for an average of $18 more per ton than shredded scrap in December, with prompt scrap rising to an average of $311 per ton in value in the RMDAS South region.

On the supply side, volume could remain a concern for processors as winter construction limitations continue in the Northeast and Midwest. Also, peddlers may just now be starting to come out of a hibernation caused by winter and an October price plunge that may have put some collectors on the sidelines.

While waiting for volumes to return, processors can at least take comfort in seeing their ferrous scrap inventory (such as it may be) gain in value in January for the third consecutive month.

The effect of ferrous scrap prices plunging in September and October can be seen in the most recent quarterly results issued by Portland, Oregon-based Schnitzer Steel Industries Inc.

The first quarter of Schnitzer’s 2020 fiscal year, which ran from Sept. 1 to Nov. 30, 2019, coincided with falling ferrous scrap prices in the first two months of that time frame.

The down market helped contribute to an $8 million quarterly loss for the scrap processing and steelmaking firm. “The sharp decline in average selling prices outpaced the reduction in purchase costs for raw materials and adversely impacted operating results by compressing metal spreads and generating an approximately $4 million, or $5 per ferrous ton, adverse impact from average inventory accounting,” the firm states in remarks accompanying its results.

Schnitzer and other scrap companies likely will see improved profitability in early 2020 thanks to rising scrap prices that seem tied to a relatively healthy U.S. steel sector.

Washington-based American Iron and Steel Institute (AISI) statistics for the week ending Jan. 4 show an increase in output from the previous week and from the comparable week in 2019.

U.S. mills produced slightly less than 1.9 million metric tons of steel in the first week of the year, surpassing the previous week’s total by 2 percent and the output of the comparable week in 2019 by 1.2 percent.

The Trump administration’s tariffs on finished and semifinished steel from several nations seem to have affected the total amount of steel that came into the country in 2019.

An AISI summary of U.S. Census Bureau statistics notes that through the first 11 months of 2019, total steel imports of 26.3 million tons represented an 18.1 percent reduction from the tonnage imported in the first 11 months of 2018.

In the first 11 months of 2019, steel imports from South Korea—the largest shipper to the U.S.—declined nearly 10 percent. Imports fell by more than 20 percent from China and by more than 35 percent from Vietnam.