US ferrous scrap market cautiously optimistic for 2023
Despite growing concerns around the health of the US economy and the impact of rising inflation, the US ferrous scrap market should stabilize and recover moderately this year after a period of sustained downside pressure throughout much of 2022, according to panelists at Fastmarkets’ Scrap & Steel conference 2023 in Dallas, Texas
Speaking on the Scrap Market Dynamics and Forecast Capacity panel, Phil Gibbs, managing director, equity research analyst, at KeyBanc Capital Markets, said that scrap, like many commodities, was in the process of trying to normalize compared with the levels hit in the early part of last year following the recovery from the Covid-19 pandemic.
“I expect scrap prices to remain historically elevated based on where global or coal and electricity prices are, and it being a substitute in relation to that metallics basket. So I think scrap will remain high relative to history. But it will come down a little bit versus last year,” he said.
“I think demand will be relatively stable. I would have thought maybe a handful of months ago that the industry probably would have grown organically a couple of percent. But I don’t feel as much conviction in that now given the economic signs we’re seeing. So probably more of a flattish outlook right now for demand, plus or minus a couple percent,” Gibbs added.
He noted that costs for scrap processors and steel mills were also higher due to rising inflation, which could create a more “disciplined environment” this year.
The forecast largely mirrors the results of a recent ferrous scrap survey conducted by Fastmarkets ahead of the conference.
The survey found that over half of respondents expected US ferrous scrap prices to trend higher this year compared with last year. It comes while nearly half of respondents forecast prices to be driven by stronger demand, while 20% pointed to lower supply. A further 20% said, however, that demand would be lower.
Asked what would be the biggest challenge facing the scrap industry in 2023, nearly half of respondents said the overall economic conditions and inflation.
Tom Meloche, general manager at K-Scrap Resources Ltd, said the US economy had an outlying amount of consumer debt that had yet to fully impact, particularly in light of escalating interest rates.
“We’ve also got an automotive industry that went from [the production of] 18 million [vehicles] pre-pandemic to 13 million, that’s 5 million less cars in the economy right now,” he said.
“You also have the automotive industry moving towards electrification. Whether we like it or not, it’s happening.”
He added that the outlook was mixed in many ways because although there were some positive signs, there were too many outliers such as rising interest rates and credit card and mortgage debt.
“It’s one of the reasons why economists are calling a recession this year. Whether it actually happens is going to be for all of us to watch.”
US ferrous scrap prices faced eight straight months of downside movement for many grades last year, but the market has shown signs of a recovery after healthy rises in December and January when mill buyers replenished diminished inventories and material flows tightened.
In the combined December and January trades in Chicago, No1 busheling increased $90 per ton and shredded has increased $50 per ton.
Francisco Chavez, director, commercial Mexico, at Metal Triple M Mexico S A De C V, also told the panel that any potential recession in the US would have significant effects on the Mexican scrap market.
“We depend so much on what happens in the economy in the US and Canada. But we’re hopeful that they will not be in a recession and that it will not be deep or extended,” he said.
But he added that even if the North American trading block went into a recession, the Mexican market was in a good position to navigate any slowdown because the country is largely sold out of motor vehicles and auto assembly Tier 1 suppliers are running at full production capacity.
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