Ferrous market booms its way into 2021

Steady domestic steel mill demand has joined booming overseas demand to outstrip supply in the December ferrous scrap market.

The combination of factors has led to Fastmarkets AMM December Midwest Index prices that rose by $80 per ton for two of the three index grades (No. 1 busheling and No. 1 heavy melting steel, or HMS), while the price of the third (shredded scrap) rose by nearly $76 per ton.

In late November, overseas demand began putting upward price pressure on United States ferrous scrap supplies, as governments around the world funded steel-intensive infrastructure plans. By the time domestic mills started making offers in early December, they encountered a loftier market that began to rise yet more.

The domestic price increases outpaced the average export prices as tracked by Fastmarkets AMM. The publication has early December East Coast export prices settling at just under $340 per ton (about a $75 per ton increase over November) and West Coast prices averaging $316—only about $20 higher than November.

While the rising prices create the potential for a healthy margin for scrap processors, the bad news is that seasonal and public health factors are placing limits on the amount of scrap flowing into yards.

“We expect our flows to settle in at or return to 70 percent of pre-COVID levels,” says a processor on the East Coast about his company’s volume levels heading into the new year.

A processor in the Midwest comments, “Business has really slowed down the last month or so. It’s definitely not because of pricing; I just don’t think there is as much scrap out there. I’m hoping for an uptick soon, but it might be a few months.”

The East Coast processor says that, as of mid-December, demand for ferrous scrap has very much stayed in place. “Domestic bids kept rising as mills couldn’t get their fill. We sold domestic plate and structural at up $65 early in December but could get another $20 now.”

Export demand, likewise, seems poised to continue, says the processor. “Container shred prices started November at less than $300 per metric ton but are now at $365 per metric ton.

On the containerized scrap side, Nathan Fruchter, a Lawrence, New York-based trader and consultant with Idoru Trading, says a constraint has taken shape as container and booking shortages are a factor in several U.S. and Canadian port regions on both the East and West Coasts.

Heading into 2021, global economic recovery and the consumption of steel that goes with it appears poised to shape the market on the demand side while public health considerations in the U.S. and the pending widespread vaccination rollout weigh heavily on the supply side.

Winter weather, seasonal factory retooling programs and virus-related restrictions in economic activity all contributed to the late 2020 spike in prices. “We have been fortunate to have been involved in some good demolition projects in November, but some of that is slowing down,” says the East Coast processor as of mid-December.

Prices could rise yet more, predicts Fruchter. “Many feel it may be the top of the market because they are in disbelief, yet some fundamentals support even higher numbers,” he comments. “There will be holes in the supply chain and that usually pushes prices even higher. We are going into winter, where tonnage can sometimes tighten up and transport can be hampered by cold weather. This affects U.S. and EU ports, but Baltic and Black Sea supplies even more. Steel demand is also back with a vengeance, so at least those prices seem to be in sync with scrap.”

The Washington-based American Iron and Steel Institute (AISI) says domestic raw steel production was just shy of 1.58 million tons in the first week of December.

America’s steel output has been on a rising trend since a week that spanned the end of April and the first two days of May of this year, when production hit a trough of 1.14 million tons. Mills operated at a 51.1 percent capacity rate that week, but are now back up to 71.4 percent of capacity.