Hitting bottom

After sharp price declines plagued all sides of the ferrous scrap supply chain in the first half of the year, prices might have finally found their floor.

Pricing for most ferrous scrap grades rose $20 per ton in August, according to Fastmarkets AMM, signaling what many say they hope is a price stabilization that will carry through the rest of the year.

In Chicago in August, No. 1 heavy melt scrap (HMS) was at $240 per ton, while No. 1 busheling was at $300 and shredded auto scrap was at $282, all reflecting the consistent $20 increase. Machine shop turnings presented an outlier, rising $68 per ton to reach $110.

“We’re hoping for a sideways market for next month, but there’s already some talk that the market might be down.” – a Great Lakes scrap dealer

The mild bounce back, though, isn’t as strong as many had hoped in this year’s sorely hurting market.

Scrap dealers remain cautious about prospects heading into September. Most ferrous scrap grades are still down nearly $100 from January of this year as well as from August of last year.

“Everybody thought prime grades would be up $30, and I think everybody’s a little disappointed by how things came up $20 across the board,” says a scrap dealer in the Great Lakes region. “Now the talk is we’re hoping for a sideways market for next month, but there’s already some talk that the market might be down. I think there’s some uncertainty about what the heck is going on out there.”

Export pricing off the East Coast did not bode as well as domestic market prices for August, with HMS No. 1 and 2 dipping slightly to $269 per ton and shredded scrap dropping to $274 per ton. West Coast exports fared somewhat better in terms of price, increasing $10 to $285 per ton for HMS No. 1 and 2. Recent cargo sales to Turkey and South Asia have signaled price stability on the export side, though, according to Fastmarkets AMM.

Sources say domestic flows are still down but slowly ramping up as more mills come back online following their scheduled summer outages. “I think some mills now have a little bit stronger appetite,” the Great Lakes scrap dealer says.

Scrap flows still are feeling the effects of the weather, which was a major driving factor during the first half of the year as rain bludgeoned much of the nation. Sources say extreme heat has put a damper on demolition activity in the southern states as laborers wrap up work by the early afternoon.

“We’ve just got major heat waves down here, in the three-digits every day, and that definitely slows [flows] down,” says a scrap processor out of the South. “And then with pricing, it’s kind of the perfect storm.”

However, many steel companies predict that the drier season will drive increased nonresidential building activity, which could keep prices stable for the rest of the year.

Steel companies shared their predictions during recent earnings calls, where they discussed their lower-than- expected earnings for the first half of the year. Those that operate scrap yards cited the sharp decline in ferrous prices as contributing to their discouraging second quarters.

“The manufacturing base is still generating an ample supply of prime scrap,” said Mark Millet, president and CEO of Steel Dynamics Inc. (SDI), Fort Wayne, Indiana, the owner of the scrap processing company OmniSource, during the company’s second-quarter conference call.

“We anticipate export volumes to remain constrained throughout the rest of the year, so this is consistent with our longer term scrap view that pricing will remain stable and supportive of healthy steel metal margins into next year,” he added.

The disappointing quarter rippled to waste and recycling companies, many of which also cited low ferrous scrap prices as a primary concern through 2019.

“We saw a rapid decline in the price of power and ferrous scrap in the second quarter, and we expect these lower prices to persist through the balance of the year,” said Brad Helgeson, chief financial officer of Covanta Energy, Morristown, New Jersey, during the company’s second-quarter conference call. “While prices appear to have bottomed, with fundamentals firming for ferrous scrap in particular, we’re revising our guidance based on where these markets stand today—not on a potential recovery.”

A recent economic report of construction input material pricing by Associated Builders and Contractors (ABC), Washington, found that prices are down 0.6 percent year over year, with iron and steel declining more than 11 percent since July 2018.

ABC Chief Economist Anirban Basu says global economic expansion and trade disputes were thought to have the potential to “accelerate materials price increases.” Therefore, “The decline in construction input prices over the past year represents one of the year’s great economic surprises,” he concludes.