Reclaiming the momentum

After a long stretch in 2019 when ferrous scrap prices only seemed to move in a downward direction, the year closed with positive price momentum for the second month in a row. Heading into 2020, scrap processors are happy to see a little life in the market—and ideally a little more scrap across their scales.

In the first week of December 2019, processors report offers from mills that lead them to believe that the indexed pricing tracked by Fastmarkets AMM likely will gain from $30 to $40 per ton in the month’s buying period. That would follow gains of approximately $20 per ton in November.

Recyclers say the price climb is necessary to regenerate moribund scale traffic. “Intakes at shredders are still very low; we have lost about 35 percent of our volume,” a recycler in the Southeast says. He expresses optimism, however, that rising prices can help the situation.

“We are now able to raise prices back to a level at which peddlers can make a living—although flow is always tougher in winter months.” – a recycler based in the mid-Atlantic region

“I believe October was the bottom of the market, at least for the time being,” the processor adds. “The Southeast steel industry is running well. Most of the scheduled mill outages are now over, and output in the South is running at very high levels. Steel prices are trending up, and export scrap prices continue to rise. All of this is putting upward pricing pressure on domestic scrap.”

A processor in the mid-Atlantic likewise sees a “turning the corner” aspect to the market as it heads into 2020. “After a nasty decline in prices, volumes and margins in the third quarter, we have seen a nice comeback in November and December pricing,” he says.

“While volumes are still challenged, we have seen the axiom play out of ‘the cure for low prices is low prices,’” the recycler adds. “Mills overplayed their hand in pushing prices down, and a $40-to-$50 snapback is taking place.”

Like his counterpart in the Southeast, the mid-Atlantic recycler is keen to see added volume. “We are now able to raise prices back to a level at which peddlers can make a living—although flow is always tougher in winter months.”

A recycler in the Great Lakes region says pent up demand from steel mills in the South and from export buyers helped lead to the price boosts in the last two months of 2019.

“Good slugs of scrap left our region in November and December for the South for higher prices and higher demand,” he says. “Couple this with the month-long orders from Turkey and the harsh months of January and February for most of us in the central and eastern United States, and the first quarter of 2020 is looking better than expected.”

The recycler based in the mid-Atlantic says export buyers had been setting the market but now must decide whether to make higher bids. “Export container pricing had been ahead of domestic pricing through the third quarter but plateaued in the last 30 days,” he says at the end of the first week in December.

The recycler adds, “In the last two days, we are seeing the Indian and Pakistani markets come up $10 per ton to try and compete with strong domestic pricing, and Turkish bulk prices have been on a tear in the last 10 days.”

Another measure of the change in market sentiment can be seen in Nasdaq Futures Exchange (NFX) ferrous prices, distributed daily by Englewood Cliffs, New Jersey-based World Steel Exchange Marketing (WSEM).

Nasdaq’s U.S. Midwest Shredded Steel Scrap Futures contract offers contract pricing for shredded scrap up to 14 months forward. The difference in forward pricing Dec. 6, 2019, varied greatly from the forward pricing that was being calculated two months earlier on Oct. 7, 2019.

In early October of last year, the settlement contract price for shredded scrap was $207, based on average bids of $205 and offers of $209. The settlement price for the next 14 months forward reflected tepid optimism, rising to just $237 in November and December 2020 contracts.

Two months later, in WSEM’s NFX contract pricing summary dated Dec. 5, 2019, the December settlement price had risen to $261 per ton, while forward pricing included $285 per ton pricing for late 2020 and early 2021.

One note of caution in the market could be a wavering in the strength of domestic steel output rates. The Washington-based American Iron and Steel Institute (AISI) reports that in the final week of November 2019, steel output in the U.S. was down 1.4 percent from the week before and was down 3.6 percent compared with the final week of November 2018.

The Trump administration might have had such numbers in mind when, in early December, it reinstated tariffs on steel imported from Argentina and Brazil.

The trade front is offering opportunity in the form of increased ferrous scrap buying from nations with emerging electric arc furnace steel sectors. India-based SteelMint points to Bangladesh as a leading example, having bought 39 percent more bulk shipments of ferrous scrap in the first 10 months of 2019.