US ferrous scrap market ripe for increase in September

The domestic ferrous scrap sector in the United States is enjoying renewed strength that is expected to continue through September - and possibly longer - due to a robust export market, constrained supply and improving steel mill run rates that have created a sellers’ market.

“Mills have been out of the market and have burned through inventory and will have to come back for a lot more. The blip of downside that happened when the return of supply outpaced demand in July is over,” a Cincinnati recycler, who expects September prices to increase by $20-30 per gross ton, told Fastmarkets.

The overall trend in the Midwest of a downward $20-per-ton adjustment on prime and no change on other grades only reflected half of the story as mills and sellers were quickly caught off guard by the tightening of obsolete grades such as No1 heavy melt, shredded scrap and plate and structural scrap.

Prices for the obsolete grades remained unchanged in the Midwest, but quiet deals at premium prices were said to be rampant.

Other sellers chose to hold on to their material on the expectation that mills would return – and pay higher prices – following the official trade this month or that September would bring higher prices still.

“Not all mills were able to buy what they want, because people are holding back. There will be a second wave of middle-of-the-month deals and third wave of up $20-40 per ton deals in late August as mills position themselves for September,” a Midwest broker said.

A seller into the Indiana mills disagreed.

“There will be buyers after the trade, but there won’t be sellers,” he said. 

In the South, mills were paying up $10-20 per ton on cuts and shredded scrap, with the price increase dependent on the seller, quantity and grade, which seemed to better reflect the underlying strength of the market.

“The trade was divided into two markets: the market centered around Detroit and Chicago, and then everything else,” the seller into the Indiana mills said.

A Detroit seller agreed and said that the South was a harbinger for what is to come in September.

“There was a big disconnect in geography between extra demand and mills online or coming back. Mills will have to continue to hunt shred, and the gap [between busheling and shredded scrap] will become so tight next month that mills will finally figure out they should just melt more busheling,” the Detroit seller said. 

The pricing spread between prime and shredded scrap has shrunk to $20 per ton from $60 per ton in June.

The export market has gone from draining excess obsolete scrap to depleting domestic supply of these grades.

“No one expected the market to be this strong. There is not enough scrap, and a strong export market is adding more pressure on the market,” a second seller into Detroit said.

In addition to at least 16 cargoes sold off the East Coast to Turkey in July, the Turks have been active in August, and there is a robust container market sucking up additional tons.

While secondary grades have been increasingly difficult to find throughout the country, the overhang of No1 busheling remains – indicating that mills have actually been enjoying finished steel sales.

“Demand is better than the mills make it out to be. Our industrial accounts are almost generating the amounts of busheling that we were receiving pre-Covid, which means they are consuming a lot and buying a lot of steel, because it takes steel to generate busheling,” a St Louis-area recycler said.

In addition to forecasts that September will be strong, market participants anticipate solid activity on the Mississippi River and in Alabama in October as one mill finishes its investment to double capacity and a second, new mill nears commissioning. Both mills will need tons. 

Only one Midwest broker was not confident about the September trade, stating that some mills have empty order books for September and that a surge of Covid-19 outbreaks or weakening in export business could all work against the market.

Fastmarkets’ steel scrap No1 busheling, index, delivered Midwest mill settled at $258.31 per gross ton on Monday August 10, down from $278.02 per gross ton the month before. The shredded scrap index fell to $235.71 per ton, down from $241.67 per ton in July, while the No1 heavy melt index increased to $205.33 per ton, up from $203.73 per ton in the same comparison.

The prices for shredder feed in all three regions assessed by Fastmarkets increased on Monday, and those prices are expected to continue to gain momentum over the next month because demand for shred is forecast to outpace supply.

Fastmarkets’ price assessment for steel scrap shredder feed, fob Southeast rose to $101.82 per gross ton on August 10, up from $100.80 per ton a week earlier. Fastmarkets’ price assessment for steel scrap shredder feed, fob Ohio Valley climbed to $86.14 per ton from $82.23 per ton on August 3, and Fastmarkets’ price assessment for steel scrap shredder feed, fob Midwest increased to $90.01 per ton, up from $88.07 per ton in the same comparison.