Spending sprees in the forecast

Economic optimism tied to pent-up household consumer demand continues to add fuel to bullish commodity markets, including rising prices for ferrous scrap. Scrap generation in the early summer is struggling to keep pace with demand, recyclers say.

The buoyant demand for steel and scrap led to prices rising yet again in the June buying period, according to Fastmarkets AMM surveying, with prompt scrap (the No. 1 busheling grade) bursting through the $600 per ton barrier and fetching nearly $630 per ton in the Midwest.

The spread in value among the busheling, obsolete shredded and No. 1 heavy melting steel (HMS) grades tracked in the Midwest by Fastmarkets AMM soared to $130 to $150 per ton in June.

A scrap processor based in the Great Lakes region of the United States says the microchip shortage plaguing the auto industry has placed a restraint on assembly and metals stamping activity in the Midwest, putting a ceiling on busheling supply.

“As far as prime generation goes, I am seeing a 15 to 20 percent reduction on the inbound,” the processor says. “Other dealers I talk to are seeing as much as a 50 percent drop, but I cannot confirm that.”

He continues, “There is not relief on the semiconductor front. There are new vehicles parked everywhere waiting for chips.” Adding to supply chain problems, he says, “is a lack of willing workers and truck driver availability.”

The current situation means the historically high spread between the value of prompt scrap and obsolete grades could continue throughout the summer and into the fall, though General Motors is among the companies saying it intends to avoid traditional summertime off at assembly plants.

Metals industry information service provider Davis Index says early June mill buying in the Midwest and East Coast regions settled with busheling rising by $50 to $60 per ton, while obsolete grades fetched about $50 per ton more compared with May.

“As far as prime generation goes, I am seeing a 15 to 20 percent reduction on the inbound.” – a Great Lakes region scrap processor

Similar price gains were seen in the Southeast, Davis Index reports, with some mills and foundries in that quadrant of the country paying $66 per ton more for shredded scrap in June compared with May. Buyers and sellers contacted by the information service company say they do not anticipate the market cooling off in July and instead estimate stable prices or increases in the $20 per ton range.

Processors and shredder operators are not bullish about summer supply levels, however. While the processor who spoke to Recycling Today foresees a continued prompt scrap ceiling, shredder operators who spoke to Fastmarkets AMM say higher scale pricing has not caused more scrap to “come out of the woodwork.”

Demand for ferrous scrap in the U.S. also is steady to rising, based on steel mill output figures gathered by the Washington-based American Iron and Steel Institute (AISI).

AISI says in the week ending June 5, steel mill output of 1.84 million tons rose by 0.2 percent compared with the week before. The week’s mill capacity rate was 82.3 percent, marking the second straight week it has been above 80 percent.

Steel and ferrous scrap prices have been on an upward trend for eight months. Mill buying transaction prices collected by Pittsburgh-based Management Science Associates’ Raw Material Data Aggregation Service show prompt scrap rose nearly 84 percent in value from $313 per ton in November 2020 to $575 per ton in May.

Overseas demand for ferrous scrap also remains a factor, though Davis Index reports the Turkish market has been scaling back its demand. The news service also says demand from the Indian subcontinent is receding, with buyers there and in East Asia possibly taking a “wait and see” attitude in case prices fall 30 days from now.

At the Brussels-based Bureau of International Recycling (BIR) World Recycling Convention Ferrous Division meeting, hosted online in early June, Lee Allen of Fastmarkets said if China started importing 5 million to 10 million tons per year of ferrous scrap, it would have a significant impact on the market. That is partly because buyers in several other Asian countries—including Bangladesh, Taiwan and Vietnam—already are putting pressure on global supply.

Allen noted the doubling of ferrous scrap prices between early 2020 and mid-2021 but said some steel prices had tripled or quadrupled, creating impressive steel industry profit margins. That circumstance also was noted by panelist Tom Knippel of U.S.-based SA Recycling.

Knippel referred to it as a “decoupling” of scrap prices from finished steel prices, adding that prices for some forms of steel are based on forward demand from “a supply chain that is still empty.”