Not yet at the bottom

Recyclers who hoped the fourth quarter could finally yield some higher prices for ferrous scrap did not see a good start to that prospect as domestic and export pricing fell in October.

After September prices as measured by both American Metal Market (AMM) and MSA Inc.’s Raw Material Data Aggregation Service (RMDAS) fell by some $18 to $30 per ton, early October brought more of the same.

AMM pricing surveys conducted during early October found that export prices for No. 1 and No. 2 heavy melting steel (HMS) were down by an average of $16 per ton on the West Coast and by $17.50 on the East Coast. The East Coast price dipped to $196.50 per ton.

The East Coast export index figure was not the only one to break through the $200-per-ton floor in October, as AMM’s Midwest Index figure for No. 1 HMS fell by nearly $20 per ton from its September price of more than $201 per ton all the way down to $182 per ton.

If oversupply is in the market, it is primarily because demand keeps getting weaker, recyclers say. “Plate and sheet mills in the Southeast are not running well—most are operating at less than 60 percent of capacity,” says a scrap recycler in southern United States.

Through the first nine months of 2016, as measured by the Washington-based American Iron and Steel Institute (AISI), the steel industry in the U.S. operated at a capacity rate below 72 percent.

If recent historical patterns held, investors who drive the commercial construction sector and heads of household who drive the housing and passenger vehicle markets held back with a “wait-and-see” outlook toward the November elections before making large expenditures.

In the meantime, as of mid-October, conditions on the ground are not good for either steelmakers or for ferrous scrap recyclers. As poor as flows at scrap yards have been, they remain sufficient to fill orders.

“What is normally a region that is in a perpetual scrap deficit is now in a scrap surplus situation,” says the recycler in the South. “The latest scrap drop [in pricing] has reduced flows into most scrap yards by 50 percent or more from July and August volumes,” he adds.

Recyclers point to the lack of supply—which is not a condition any recycler wants—as a likely factor in the next round of mill buys, the processor in the South says. “We should see some tightening of supply in November, providing mills operate at their current level or better,” he says.

The export market remains problematic, based on shrinking AMM index pricing and the perspective of the southern recycler. “It is about as rare as a solar eclipse these days to have the export market better than the domestic market in the Southeast,” he remarks. However, shriveled supply and the potential for mills to buy in greater volume in November give him some hope things will at least get no worse in the final two months of 2016. “My guess is domestic pricing has normalized and we will see little change through December,” he says. “Coastal pricing will be adjusted according to export values, which appear to be rising [as of mid-October].”

The gloom within the overall market was reflected in presentations at the ferrous session of the Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable 2016 event, held in Chicago in mid-September.

Global finished steel oversupply has become a challenge for U.S. scrap dealers in many ways, according to Charles Bradford of New York-based Bradford Research. An appreciable decline has been seen in the flow of ferrous scrap from the U.S. to Turkey this year despite Turkey experiencing an increase in overall ferrous scrap imports.

If oversupply is in the market, it is primarily because demand keeps getting weaker, recyclers say.

Many reasons contribute to this, Bradford said, led by the strength of the U.S. dollar. The higher U.S. dollar makes U.S. ferrous scrap more expensive. Because of that, many Turkish steel mills are opting to purchase more scrap from sources outside North America, particularly Europe.

Another factor for the drop in ferrous scrap exports to Turkey, Bradford said, is more China-centric: Billets from China are being used as a substitute for ferrous scrap in Turkey. While officially China does not export steel billets, Bradford contended that Chinese billet producers have made some modest adjustments to the billets and are shipping them as “square boxes.”

As for China and its steel industry, because the overwhelming majority of steel being produced in that country is not produced via electric arc furnaces (EAFs, in light of the uncertainty about electricity supplies), demand for ferrous scrap (from U.S. and other sources) to feed Chinese steel mills is minimal. “I don’t think they will switch to EAFs. Electricity is too expensive,” Bradford said.

China’s government and industries also are focusing on efforts to more aggressively boost the domestic collection of recyclables, including ferrous scrap. The result could be a lessening of the overall demand for imported scrap in China.

Additional RMDAS (Raw Material Data Aggregation Service) pricing from Pittsburgh-based Management Science Associates (MSA) is available on the Recycling Today website at www.RecyclingToday.com/RMDAS.

The American Metal Market (AMM) Midwest Ferrous Scrap Index is calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The AMM Scrap Index includes material that will be delivered within 30 days to the mill. Spot business included after the 10th of the month will not be included. The AMM Ferrous Scrap Export Indices are calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The detailed methodology is available at www.amm.com/pricing/methodology. *FOB New York, in metric tons; **FOB Los Angeles, in metric tons.