Ferrous market seeks a spark for ignition

Several data points in the United States indicate overall economic activity has maintained modest growth in the first few months of this year, but ferrous scrap processors can be forgiven for feeling removed from a greater sense of prosperity.

Entering the second quarter in early April, prices paid by domestic mills and overseas buyers resisted any strong upward movement. Although some processors hoped winter seasonal scrap supply tightness might spur mill buyers to act, steelmakers in many parts seem not to have bought into that notion. 

A processor based in the Midwest says while a winter storm or two in early 2024 might have made the news, his facilities did not experience a sizable slowdown in inflows overall.

“Scrap flow was unusually strong in January and February,” the processor says. “Aside from a 10-day winter storm and cold snap in January where scrap flow slowed up a little, we saw regular flow as if winter never came.”

However, the same processor says supply tightness in the market yet could yield higher prices. “Inflows in March were down from February and, so far, early April flows are off even further from March,” he says. “We truly believe that [generated] scrap did not pile up in December, January and February as normal, waiting for warmer weather to be collected and processed.

The processor says steady flows in the winter months coupled with lower prices have supply somewhat stalled out in the regions it operates, which caused prices to hit a floor and even firm up off the bottom” in early April, he adds. “Any increase in demand for May will likely cause prices to rebound slightly in the domestic market.”

On the demand side, steel mill output in the United States in the first quarter of 2024 dropped by 2.6 percent compared with the prior year, according to the Washington-based American Iron and Steel Institute (AISI).

AISI figures for the year through March 30, one day shy of completing the first quarter, show 21.75 million tons of output from U.S. mills operating at an average 76.2 capacity rate.

While U.S. employment numbers and steady construction sector activity are among the data points that should boost the optimism of steelmakers and scrap processors alike, global factors could be undermining some of the positivity.

In March, AISI says imports into the U.S. rose by more than 11 percent compared with the prior month. Finished steel imports in the first quarter of this year were 2.6 percent higher compared with the first quarter of 2023 and accounted for 23 percent of market share in March.

By the numbers, Canada, Brazil and Mexico are the highest volume shippers of finished and semifinished steel to the U.S. so far this year.

Even though two consecutive U.S. presidents have introduced measures designed to protect domestic steel producers from competition deemed subsidized or otherwise unfair, the lure of less expensive overseas steel remains hard for some buyers to resist.

Adding a layer of problems for scrap processors and traders is the rising output of steel in China at the same time some of the most intensive steel-consuming aspects of that nation’s economy seem to be waning.

A late February analysis by Netherlands-based bank ING cites the China Iron and Steel Association (CISA) when reporting that steel inventories at major Chinese mills had risen by more than 25 percent in February.

Industry analysts will be watching steel trading figures for the first half of this year to see how much of that semifinished and finished steel gets exported and where it will be shipped.

Should Chinese and Russian billet start playing a larger role in Turkish and Indian rolling mills, that could cut deeply into the U.S. scrap demands for electric arc furnace (EAF) and induction furnace mills in those nations.

Last year, the Turkish government took action to anti-dumping measures against hot-rolled coil steel arriving from China, but it remains to be seen whether billet or ingots would receive the same scrutiny.

As of early April, Davis Index reports some positive signs from overseas markets in the Indian subcontinent, providing potential support for No. 1 heavy melting steel (HMS) and shredded scrap prices in the eastern U.S.

After the first week of April, buyers in Bangladesh where willing to pay $5 to $7 per ton more from those grades shipped from the U.S. compared with the prior week, according to Davis Index.

The news was similar from Pakistan and India. In India, Davis Index says positivity among secondary sector steel producers was evident as that nation started a new fiscal year April 1.

A brief period of slow demand in India at the tail end of its prior fiscal year may have lifted. If so, scrap processors several thousand miles away in the U.S. could be among the beneficiaries.