Ready to spring back?

After experiencing significant price declines in October and November, ferrous scrap sellers were largely able to stave off lower bids in early December, and some shippers are optimistic signs are pointing to a winter and early spring price rebound.

The transaction pricing collected by the Raw Materials Data Aggregation Service (RMDAS) of MSA Inc., Pittsburgh, portrays the autumn price drop, with shredded scrap declining in value by an average of $20 per ton in October and another $28 per ton in November.

But the price indices calculated by American Metal Market (AMM) for the early December buying period showed prices stabilizing for all three major grades tracked, with shredded scrap actually gaining an average $2 per ton in value as measured by AMM’s Midwest Index.

Although some aspects of the national and global economy are still raising concerns, recyclers report that several fundamental supply and demand factors point to the U.S. ferrous market reaching a floor.

Although global steel prices are falling (triggered in large part by Chinese inventories and overcapacity, according to many analysts), domestic mill melt schedules remain steady.

Therefore, EAF (electric arc furnace) mills throughout the country need to keep their scrap purchases equally steady, with mills in temperate climates keeping one eye on winter weather forecasts.

Those circumstances helped lead to December’s price stabilization, says a recycler in the Mid-Atlantic region, citing “dealer resistance and fears of scrap unit shortages going into January” on the part of mill buyers.

“Domestic mills bought sideways for the first few days of December but now are quietly buying at higher prices,” the Mid-Atlantic recycler says in mid-December. On the East Coast he says pressure on the buy side was “certainly not due to export pressure, of which there is none.”

As an overall trend, however, export buyers began to show a little more interest in U.S. scrap in mid-2014, according to Commerce Department statistics, though overseas buyers have been largely unwilling to outbid domestic buyers.

On the supply side, processors report varying patterns of scrap generation and flow. “Volumes are down; this has been a very challenging year for the scrap business,” says a scrap buyer in the Ohio Valley region.

The Mid-Atlantic region recycler describes similar circumstances, saying, “inbounds are definitely slower.”

A recycler based in the Midwest says, “Weather hasn’t affected flow, but trucking—and the availability of trucks—has been an issue in moving scrap.” To what extent reduced scrap flows will prompt domestic mill buyers or overseas buyers to come more heavily into the market will be a key factor in January and February pricing.

The recyclers contacted in mid-December see the potential combination of reduced supply and the need to build winter inventories as positive signs heading into 2015. “December showed signs of some recovery,” says the Ohio Valley buyer. “I hope the trend does not run out of steam; I am thinking January could have very strong markets.”

As they have in several prior months, ferrous scrap processors will be eager to see if export buyers change their recent habits and bid up scrap prices on the Atlantic or Pacific coasts.

Although the Mid-Atlantic region recycler says he has not yet heard from overseas buyers as of mid-December, October figures from the U.S. Commerce Department indicated some renewed interest from international buyers during that month.

An AMM summary of October Commerce Department data notes that some 445,000 metric tons of shredded scrap were exported that month, up by nearly 50 percent from the 300,000 metric tons exported in September. Turkey was the leading overseas buyer of shredded scrap and No. 1 heavy melting steel in October.

However, overseas buyers will have had to continue the strong buying trend in November and December 2014 for U.S. shippers to match their export volume total for 2013. Figures from the first three quarters of the year portray a restrained export market.

While the U.S. shipped out some 14.4 million metric tons of ferrous scrap in the first nine months of 2013, the volume dropped by 19.4 percent to just 11.6 million metric tons during that same time period, according to United States Geological Survey data.

Turkey, the major purchaser of ferrous scrap off the Atlantic Coast, purchased 2.77 million metric tons of this material in the first three quarters of 2014, which is a decline of 32.9 percent from the 4.13 million metric tons the nation’s mills purchased in the comparable period in 2013.
 

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 detailed methodology is available at www.amm.com/pricing/methodology.html. 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.html.