Stymied flow of raw materials along Mississippi River may shore up May’s ferrous scrap market

The current curtailment of barge shipments along the upper portion of the Mississippi River due to flooding is balancing some of the negative sentiment brought on by a swathe of end-of-month cancelations sent out by US mills to their suppliers

This slew of cancelations compounds previous, persistent estimates of a $20 per gross ton month-on-month drop on prime scrap grades and $30 per ton — or significantly more — on obsolete and shredded scrap grades in May. Shredders across the US have already slashed their feedstock prices in line with this forecast.

But there is a beacon of hope among some sellers in the south and southeast: that additional disruption to barge shipments along the Mississippi’s upper basin may stay the drops to an extent. If barge shipments of scrap are choked off, mills may be forced to go inland to source material.

Conversely, if northern and midwestern sellers who ordinarily ship remote tons via river are now unable to do so, their local markets may become saturated with scrap, meaning that drops could be more severe in those areas.

The Upper Mississippi River Basin, which houses 27 locks and is straddled by Minnesota and Wisconsin at the source and flows down to Missouri and Illinois via 1,250 miles of river, has been subject to curtailments from flooding since Friday April 28, Aimee Andres, executive director of Inland Rivers, Ports and Terminals Inc (IRPT), told Fastmarkets on May 1.

Lock 15 — which connects Rock Island, Illinois, and Davenport, Iowa, and is in the middle of the basin — closed on Friday after the water stage there exceeded its 20.8-foot operating threshold, she added, meaning that material cannot progress via this channel.

Locks 18 and 20 and their associated dams closed on April 30 and are not expected to open until May 8, while locks 21 and 22 are barely below their operating thresholds as of Monday May 1 and may face imminent closure due to river crests brought about by snow thaw in Minnesota. Theoretical closure of these locks effectively shuts off the entire water body spanning from Illinois to Missouri.

Water at the higher portion of the river has now made its way south, so every few days, another lock will close, or the previous one will open

“Water at the higher portion of the river has now made its way south, so every few days, another lock will close, or the previous one will open,” Andres said of developments on the river, suggesting that the issue would proliferate downstream, affecting different areas — and markets — as time passes.

A scheduled 120-day closure across three dams in Illinois, slated for June this year, was already expected to exacerbate transportation issues for shippers transferring material to the Mississippi waterway at the onset of the summer.

While grains, coal and mineral products are the Mississippi’s most-transported commodities, the river has long been frequented by scrap sellers who send material south from Midwest markets to service what is now an increasingly bustling hub of electric-arc furnace (EAF) steelmaking.

Scrap and raw materials shipments in question

In 2020, 114 million total tons were shipped through the Mississippi’s upper basin alone, according to the IRPT’s latest data. Iron and metal products made up 1.8 million tons of that total, 1.6 million tons of which were classified as scrap and ores.

The Iron and Metals category tracked by the IRPT includes pig iron, ferroalloys and finished steel products, including plate, sheet, bar and pipe and tube steel products.

“Mills’ order books are still good, and if they’re not going to get river scrap, with parts of the Mississippi flooded at the moment, they have to get that material inland. It may strengthen what weakness there is showing to be. If scrap is not coming in by river, it can’t flood the domestic market,” a dealer local to Mississippi said of the impact the floods could have on May’s market.

“People will still go to export, and people who don’t do river sales, they’ll truck it down and truck it on a barge somewhere,” the same source indicated.

Much has been made of the negligible post-Ramadan presence of Turkish mills in the US export market — the Muslim religious holiday concluded with the Eid-Al-Fitr celebrations on April 21. Their absence is expected to give impetus to domestic mills to drive prices down further on cuts and shred, the US’ most commonly exported grades.

“Dealers already know that the market is down $30 per ton… the discussion now is centered around how much lower down than $30 per ton it will be. No one is even mentioning grades,” a scrap source in the southeast stated.

Turkey finished April with a minimum of eight US cargo purchases, broadly on par with Turkish imports of US material in the first three months of the year in terms of volume, but the country’s mills secured April’s bookings at incrementally lower prices. US deep-sea ferrous export prices to Turkey shed approximately $29 per tonne between the end of March and the end of April.

Two Baltic cargoes have been subsequently booked by Turkish mills at $403 per tonne CFR for an 80:20 mix of No1 and No2 heavy melting scrap — equivalent to $408 per tonne CFR for US-origin material — indicating that further decline is in the cards for US exporters. The last US sale of the grade was at $415 per tonne CFR, it was reported on April 24.

Outlook for scrap and raw material prices in May

US export shred prices would be assumed to be equivalent to $428 per tonne CFR based on the two Baltic deals, due to the prevailing $20 per tonne spread between the grade and HMS 1&2 (80:20).

Primes are expected to perform better than their cut and shred counterparts in May amid reports of a relative tightness of supply.

There is a sentiment that pricing in the hot-rolled coil market has peaked. HRC prices reached their lowest since early March on April 28; lower prices are giving mills impetus to put a lid on busheling prices despite reportedly decent order books.

Falling prices for pig iron — a prime scrap substitute, the import prices for which have begun to slide — could have pulled the rug further from under the prime scrap market in May.

But disruptions on the Mississippi are expected to offer support to pig iron prices through the summer, sources told Fastmarkets, with prices for the alternative iron now unlikely to slip further.

“The flooding and later lock enclosures will keep basic pig iron in this range for most of the remainder of the year,” one Midwest trader said, “even with scrap and steel prices declining.”

Another Midwest trader said the closing of the Illinois River for lock and dam maintenance effective June 1 means “you can’t get material to Chicago, and Chicago can’t get material downriver. Basically, the river is not an option at all, given the flooding that’s going on now, and the closure on the Illinois in June.”

Bill Beck in Indianapolis contributed to this article.

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