What’s driving scrap steel prices right now | Fast Forward Market Briefing transcript  

Welcome back to the Fast Forward podcast. This is your market briefing. I’m Alex Kershaw, I’m a senior analyst at Fastmarkets, covering steel, raw materials and ferrous scrap. There’s been a lot of volatility across the markets, so today I’m gonna take a step back and unpack what’s driving scrap steel prices and what we expect in the near term to medium term.

So, if we look at the market and the global picture, the key theme is quite consistent across different markets. Prices have been moving higher, but the underlying fundamentals in terms of demand haven’t improved, whilst we’re actually seeing supply improve as well. So, what has been raising prices more broadly across the market is cost-push factors.

The Middle East conflict has been central to this. Higher oil and bunker fuel prices have lifted freight costs globally, which directly increases the landed cost of scrap, particularly for import markets in Turkey, the leading market across the world, and also markets in Asia, such as India and Southeast Asia.

So, while higher energy prices are pushing up steel production costs, lifting steel prices and lending some support to scrap, steel demand still actually remains quite weak. And so, the broad brushstroke of what the market we’re seeing at the moment is that price rises are gonna be fragile at best, and actually scrap flows typically improve around this time of the year.

We’re seeing downstream demand remain constrained, and so we see the recent price upside as being fragile at best. So in this podcast, I’m gonna go through a few different markets.

In the US market, obsolete grade scraps such as shredded scrap and heavy melt scrap has come under pressure over the past few months.

Yes, prices are up from where they were at the start of the year, but we’re now starting to see some downside start to hit them. So most obsolete scrap prices fell around twenty dollars month on month, while prime scrap was actually steady. And one thing we do expect in the US market is that prime scrap will perform more strongly than obsolete scrap.

For obsolete scrap, the main things that are weighing on all those markets is that seasonal collection is increasing and more material is coming into the market, and that typically pushes prices lower. At the same time, export demand is soft, especially from Turkey, which means more scrap of that grade staying in the US, and the Middle East conflict is reinforcing this.

So disruptions to shipping routes and high freight costs reduce export competitiveness and leads to more material naturally being retained domestically. In contrast, prime scrap is performing slightly stronger, and part of that has been that there’s been some support from downstream flat steel prices.

So, hot rolled coil in the US, which their production route typically uses a higher grade prime scrap. Those hot rolled coil prices have been consistently picking up over the last few months. This has allowed mills to sort of improve their margins, and we’ve actually seen steel mill utilization, particularly for flat steel rise.

In the longer term, prime scrap will be boosted by rising steel mill capacity within the US. There has been a few prime scrap consuming flat steel mills coming online over the past few years, and there are more to come online too. Thinking the likes of Nucor, SDI, they’ve been building new mills, and they’re all ramping up.

This means that the high-grade scrap to produce that flat steel will be benefited. At the same time, obsolete scrap that is exported out of the US, and less of those exports will be taking place, that supply will improve, and that will keep those prices for obsolete scrap down.

So prime scrap up, obsolete down.

In Europe, scrap prices have firmed in recent months. Again, we’re talking about in the US and other markets. But once again, that demand is not really demand-led, it’s rather a cost push factor. So if we look at E3 scrap in Germany, which is an obsolete grade, it did rise to three hundred and thirteen euros per ton last month, and that is up from two hundred and eighty-three euros in late twenty twenty-five.

But a big part of the upward price movement has come from higher steel prices, which in turn are being driven by rising energy costs, linking directly back to the conflict in the Middle East. So following the escalation of the conflict in the Middle East, European gas prices have moved up sharply with an indicator of that being the Dutch TTF gas price, which as of the start of this month was around sixty percent higher than at the start of the year.

What this has done is push steel prices higher and widen steel over scrap spreads. Now, under normal conditions, you would expect that scrap prices would benefit from rising steel prices, and they have to an extent. But one key difference here is that actually the downstream demand is still weak. Construction activity remains subdued.

You can see that with building permits in key markets such as Germany being well below historical levels, and our forward demand expectations in the construction sector are weak. So in turn, the rising steel prices have actually been margin protection rather than rising demand. There is some upside though, and, you know, one thing to keep an eye on is how policy measures will be affecting the market.

So, there are some support to steel production in Europe coming from CBAM, the Carbon Border Adjustment Mechanism, which essentially has been denting steel imports into the EU block and has helped encourage some rise in steel production to cover for lost volumes going into the region.

That being said, though, the weak downstream demand indicators are still expected to limit how high steel production can rise, and we see the upside in the recent months being energy-related, and that’s fragile at best, given that the demand indicators remain so weak.

If we then move to Turkey, and this is where the global scrap price really is set, and this comes as Turkey is the main scrap-importing country in the world, typically between fifteen to twenty million tons per year. And again, Turkish scrap prices have risen quite sharply in recent months. Again, this is cost push factors.

The conflict in the Middle East has pushed up oil and freight costs, and with Turkey being such a strong import market, landed costs into Turkey are being raised by the cost of freight. At the same time, we’ve also seen rebar export prices, which rebar is what scrap is used to produce, also moved up, and we’ve seen a slight widening in the steel over scrap spread.

But I do think it’s important not to overstate that spread as a support for scrap demand. And in reality, this is more about margin defense rather than net margin expansion, as mills are trying to offset their energy costs rather than expand their steel mill output aggressively. And this leads directly into one factor that I think will weigh on scrap now, and that will be raw material substitution.

So Turkish mills do have the option to use Russian pig iron in their steel production.

And why is this important? Well, pig iron is typically a higher metallic yielding raw material for steel production, and right now it’s priced actually well below where the Turkish import scrap price is. So why is this the case? Well, Russian exporters are limited to selling volumes into Turkey, and they do not really have much in the way of other markets to move volumes into.

In the case of their exports, or I should say Turkish imports, Turkish mills have imported around five hundred and fifty thousand tons of Russian pig iron in the first quarter, and that was up by eighty-seven percent year on year. No other market is taking Russian pig iron, really, with the EU effectively cutting off Russian pig iron last year.

And so this allows mills in Turkey to optimize their raw material mix away from scrap, where possible, and this has likely been the case and will be the case if Turkish scrap prices rise even further. So this is why we think that prices into Turkey may be dented for scrap over the near term as there’s cheaper, more price attractive volumes available for them.

And yeah, overall, the balance looks negative. Those higher energy costs that are lending support to scrap prices are also likely to slow steel production, and this historically translates into weaker scrap demand. And so even though the price of scrap has benefited, there’s gonna be competition from pig iron and steel mills are likely to slow their production rates due to energy costs that they face.

Now, if we look at China, China is a market that is not really a big importer, and it’s not a big exporter of scrap. Most of the scrap is kept within the country, and their price doesn’t really affect global markets. But again, with China, there has been some price rises, but the downside is more prevalent there as well.

And scrap prices in China actually remain well below where they were three, four, five years ago. And why is this? So on the demand side, demand for steel is actually quite weak in China, especially for rebar, which is the key product that scrap goes into. And we can see this with real estate activity being very low.

Construction starts of real estate were down by 20.2% year on year in the first quarter and are down by sixty percent on the average for the past ten years. This comes amid well-publicized financial issues for property developers and also what we’re seeing is a lack of confidence by Chinese buyers of housing in the ability of their houses to retain wealth and potentially equity to grow.

And so there’s a real slowdown in that sector, and there’s not much upside expected in the near term. I’ve seen economic forecasts that say construction will rise in China by around 0.8% in the third quarter on the quarter. That’s marginal at best and is not enough to really lend support to scrap and to steel prices.

And this has really kept margins for steel producers in China very tight. They’re barely at six hundred yuan, which is around ninety dollars per ton, which when you also add in labor costs, energy costs, and prices for other key raw materials, the steel over scrap spread is not enough to really give much profitability at all to steel producers.

That being said, some potential support may come from the rise in prices of alternate raw materials to scrap, such as iron ore and coking coal. Now, both those products are imported to a significant extent from overseas. Notably, iron ore with Brazilian and Australian, iron ore being the key raw materials in hot metal production, and those prices will be affected by rising freight costs.

And so if hot metal rises, we may see some mills switch to scrap, and that may lend some upside support to scrap. But I’d say that’s an upside risk rather than an expectation, and the risk remains skewed to the downside.

And so stepping back, the pattern is pretty consistent across all regions. We’re also seeing this in India, in Southeast Asia, and Japan as well.

And, you know, the recent price strength, again, has been driven much more by cost than demand, and the rise in energy prices has been a real support to the market. At the same time, there are some structural shifts. In Europe, CBAM is beginning to support domestic steel production and scrap to an extent, but that support is still constrained by weak end-user steel demand.

The main takeaway I’d say is that across regions, we’re moving into a seasonally healthy period for obsolete scrap supply. Downstream demand remains weak and energy costs are likely to start to slow steel production across quite a lot of markets, and that should weigh on prices. And so, in the near term to the medium term, we’re mostly expecting some downside risks to prices, and the balance of risk definitely is skewed towards there.

For a deeper dive into our forecasts, head to the Fastmarkets website, where we track over sixty scrap and steel raw material price outlooks globally.

I’m Alex Kershaw. Thank you for listening to me today.