Russia/Ukraine tensions cast shadow on prime

Prime steel scrap prices were a hot topic ahead of March’s ferrous trade, following the announcement that Russia sent troops into eastern Ukraine on Monday February 22 in a move that could threaten the United States’ pig iron supplies and force mills to rely more heavily on prime scrap

March’s trade was already expected to be firmer than in February – with market participants touting an upward trend of $30-50 per gross ton for cut and shredded scrap – although there was still uncertainty on primes, which underperformed their obsolete and shredded counterparts last month.

Early indicators suggested that prime scrap sellers would be looking to recoup the broad $20-25 per ton they lost in February’s trade.

“That’s the big question,” a US recycler told Fastmarkets. “One producer has announced an increase in its hot-rolled coil prices [for April], but it will still come down to a question of demand, because orders are still weak. It’s going to be a hard one.”

HRC prices have been trending consecutively lower since peaking in the latter half of 2021.

“Some people are saying prime will be up modestly, but if shred goes up… [maybe busheling will do the same],” the same source said. “Shred is the tight commodity right now because of the weather. Last month, some deals were sideways on busheling and some were down by $20 per ton, and some said they sold down by $35 per ton. There are a lot of discrepancies there [on busheling].”

Prime scrap prices were disjointed in February’s trade, with prices reported in a wide range, from down by $35 per ton to early sellers, to sideways on private sales made later in the trade compared with January.

Smoldering geopolitical tensions between Russia and Ukraine – two top pig iron producers – were bolstering sentiment for prime prices since electric-arc furnace (EAF) steelmaking now accounts for 70% of the US’ raw steelmaking capacity, according to the American Iron & Steel Institute (AISI).

Prime scrap, and pig iron, account for at least 40% of the raw material input for EAFs focused on flat-rolled steel products such as hot-rolled coil. Pig iron is essential to the mix because it allows mills to add more shredded scrap into their melt. Alternative irons, including pig iron, can be used as a substitute and have been prioritized after prime scrap prices hit unprecedented highs in 2021.

Russian President Vladimir Putin’s long-expected decision to send troops into neighboring Ukraine has triggered the imposition of sanctions by United States President Joe Biden on Russia-backed separatist regions in Ukraine’s eastern provinces of Luhansk and Donetsk, after the Russian president announced on February 21 that he would recognize the regions as part of Russia. This was despite only half of each province being under the control of separatist factions.

Further sanctions were coming thick and fast, with the situation expected to have a cataclysmic effect on prices for prime scrap grades, including those of No1 busheling in the long term, with a hefty question mark hanging over two of the US’ most significant pig iron suppliers.

But in the nearer term, the implications were not so grave, multiple sources said.

“While the broad consensus right now is [that prices will go] up by $30 per gross ton next month ,with some people talking up $50 per ton [on cuts and shred], it is dependent upon regions,” the same recycling source said. “Though some people are saying less on prime, pig iron is where Ukraine and Russia come in. The tensions are driving up the price of pig iron – we have heard deals above $600 per ton on pig iron.”

Fastmarkets assessed the price of pig iron, basic grade, Ukraine/Russia, fob New Orleans at $605-635 per ton on February 22, up by 6.9% at the midpoint of the range from $565-595 per ton on February 14.

Pig iron sales to US mills continued to rack up at higher prices, with sales recently heard at $600-620 per tonne on a cif basis for CIS-origin material.

Though it was understood that it is currently business as usual for pig iron producers and exporters in both Russia and Ukraine – with the majority of Ukrainian producers of the prime scrap substitute clustered in the center of the country and not in the east – sights were set on what this could mean for prime prices.

About one-third of US pig iron imports come from Russia, another third from Ukraine and one-third from Brazil.

The US imported 257,997 tonnes of pig iron in December 2021, according to the latest statistics from the US Census Bureau. Of this, 22% – or 56,787 tonnes – was of Russian origin, a small total compared with the 120,992 tonnes (46.89%) imported from Ukraine.

In 2021 as a whole, the US imported 6,021,549 tonnes of pig iron – 2,066,786 tonnes from Russia and 1,682,137 tonnes from Ukraine.

US imports of the prime scrap substitute escalated over the course of 2021 amid sky-high prime scrap prices, which hit unprecedented highs in August.

Fastmarkets assessed the steel scrap No1 busheling index, delivered Midwest mill at $651.96 per gross ton on August 10 last year. The price was most recently assessed at $520.01 per gross ton on February 10 this year.

Chicago Mercantile Exchange’s busheling futures contracts are settled against this index.

Overall appetites for March were expected to be strong. Certain US mills started to sniff out scrap for March’s ferrous trade in mid-February, after failing to adequately cover their requirements in that month’s trade, sources told Fastmarkets. The news that the geopolitical tensions between Russia and Ukraine have reached an inflection point has only exacerbated the situation for prime grades.

Prime scrap deals for March have been actively occurring since February 22, with mills trying to get ahead of the buy, and not lose tons to competition.

Whatever the outcome, the current price spreads between hot-rolled coil and both pig iron and busheling are so wide – at $465.49 per ton between HRC and busheling, and $366.50 per ton between HRC and pig iron, based on Fastmarkets’ latest price assessments – that it was thought that mills would be able to absorb any cost implications, sources said.

Fastmarkets assessed the steel hot-rolled coil index, fob mill US at $985.50 per ton on February 18, although it rebounded to $1,010.20 per ton on February 22. Prices for HRC have been declining since hitting a high of $1,965 per ton in late September 2021.

Futures markets have reacted quickly to the Russia/Ukraine situation, with bids for the front-month March contract reaching $540 per gross ton on February 23.

This reflected early assertions that the market could be up by a minimum of $20 per gross ton over February. With the trade still a way out, that figure could go up, depending on the rising tension between the two regions.

“Busheling futures reacted abruptly to the Russia/Ukraine news on expectations of constrained pig iron supply with a conflict,” Joshua Toney, a broker with Freight Investor Services, told Fastmarkets.

“Last Friday, the busheling contract for the second half of 2022 traded at $560 per gross [ton. On Wednesday,] the curve moved into backwardation once more with front-end buying pushing the second-quarter 2022 contract to $578 per ton, from $555 per ton on January 18,” he added.

“From a value-in-use perspective, it was strange to see only a $6-per-gross-ton spread between Turkish heavy melting scrap and Midwest busheling indices on February 10,” he said. “With this current uptick in busheling futures, the spread between the two grades has widened, capturing some iron unit premium.”

What to read next
European scrap consuming electric arc furnace output is rising, with demand for higher grade scraps to produce flat steel expected to grow. Fastmarkets has launched prime grade scrap forecasts to capture this
Demand for ferrous scrap in Asia has been rising, with the region becoming a leading importer of scrap globally. Fastmarkets is expanding its forecasts in the region to cover this trend
Here are the four key takeaways from the US scrap market participants of our June survey
The push toward decarbonization will dramatically increase the demand for ferrous scrap materials among major Indian steel producers in the coming years, Zain Nathani, vice president of the Material Recycling Association of India (MRAI), has said in a Fastmarkets webinar
Fastmarkets invited feedback from the industry on the pricing methodology for its International Organization of Securities Commissions (IOSCO)-audited ferrous scrap materials, via an open consultation process between April 4 and May 6, 2024. This consultation was done as part of our published annual methodology review process.
Here are the four key takeaways from the US scrap market participants in our May survey