By Paul Ploumis (ScrapMonster Author)
April 13, 2016 08:44:36 PM
The ferrous scrap market was not a tale of two cities this month. It was a tale of one city where common sense prevailed; and several others, where common sense was in as short supply as shredded scrap.
WSEM - World Steel Exchange Marketing - Mike Marley’s Shredded Power #40
Scrap prices soar by $50; export demand also rises.
April 12,
2016
Mike Marley (484) 751-5600
Peter F. Marcus (201) 503-0902
All but the fluff - Commentary
The ferrous scrap market was not a
tale of two cities this month. It was a tale of one city where common
sense prevailed; and several others, where common sense was in as short supply
as shredded scrap. Buyers in the Detroit area said a week ago “let’s get it over
with” and paid up $50 per gross ton for scrap this month. Elsewhere, several
mills and their brokers, were still far apart from the dealers for much of last
week.
Some brokers were
adamant. They were holding the line at up $40 per ton and would not pay a penny
more. Dealers proved to be equally stubborn. The line broke before week’s
end. The mills had already gotten in most of the late or delayed shipments from
the previous month, and now faced the threat of running low on key grades. They
capitulated and paid increases of $50 per ton, and in some areas, as much as $60
per ton or more for shredded scrap from distant suppliers.
Much of the
mill and broker resistance was based on their belief that there was enough scrap
in dealers’ yards, said a Midwest trader, and they argued that dealers didn’t
need to raise prices as much. “They don’t realize that
dealers’ desires for higher prices aren’t spurred solely by greed. That’s an
oversimplification,” he said. “Other factors weigh in.”
Higher prices bring out more scrap and foster cutthroat competition
among dealers.
First, most dealers are short
sellers. They don’t have all the tonnage they promise to the mills when
the deals are made at the start of each month. They are counting on the material
that will arrive in coming weeks, and they are always at risk that rival dealers
can raise their own buying prices in the interim and take away scrap. Then they
need the financial wherewithal to compete.
Second, most realize that once they have
shipped this month’s inventory, they will have to pay more to restock their
yards. Scrap price increases are a poorly kept secret and their
suppliers—auto wreckers, demolition contractors and even the peddlers—are aware
of the higher prices the mills paid this month. They’ll apply the trickle-down
theory and look for matching increases for what they offer to dealers.
Lastly, the higher prices indicated
that some mills have bigger appetites for scrap and may want even more next
month. That’s enough reason for the dealers’ rivals to hike their scale
prices and the tonnage they sell to the mills next month, he said.
The price increases gained this month won’t
have much impact on the flows into dealers’ yards, another Midwest trader said,
at least not immediately. Intake may rise by no more than 10% this month.
A significant increase in the flows won’t come until mid-May and possibly June.
That’s when the auto wreckers and smaller dealers will decide that they aren’t
likely to get much more money from the bigger consumers, he said. Then they will
sell all they have been holding off the market.
Some dealers argue that the mills will have
to be patient as they wait for the flows of obsolete scrap to rise. Many
of the peddlers who are one link in that supply chain have all but abandoned
scrap gathering. The steep drops in scale prices in the second half of last year
and the onset of winter discouraged many of those suppliers. That intake won’t
be restored overnight. It could be a month or more before that segment of the
supply pipeline returns to the level seen last year, said a dealer in the East.
Another reason is the manpower
shortages at both scrap yards and auto wreckers. When demand and prices
plunged last year, both laid off many of their workers. Some auto wreckers now
don’t have enough workers to strip valuable parts like catalytic converters and
radiators from cars and drain the fluids so that the cars can be flattened and
shipped to shredders. Processing and the pace of deliveries of prepared scrap
from dealers to the mills is impeded. Even the latest price increases won’t
correct that problem quickly.
Most mills have all they need, but
are still open to offers of more scrap.
The mills have bought all they need for this
month, said a Chicago-based broker, but that hasn’t stopped some from listening
to and accepting more offers. One mill buyer said he bought an extra
10,000 tons because it was available and the price now may be lower than what he
might have to pay next month. “We’re looking for the scrap market to be sideways
in May,” he said, “but since we missed the mark by a wide margin this month,
we’re not sure where it will go now.”
A mill in the South paid as much
as $280 per ton for shredded scrap. That might seem too high given that some
Midwest steelmakers paid their local suppliers $260 per ton for shredded scrap
delivered to their mills. But one trader in the region said the price at Midwest
yards along the Mississippi and Ohio Rivers was as high as $245 per ton F.O.B. a
barge. Tacking on another $30 to $35 per ton for shipping and unloading costs at
the downriver mills would put the price close to $275-$280 per ton, he said.
Some U.S. mini mills didn’t buy
any scrap from Europe this month because those prices were too high. Western European exporters are demanding $290 per tonne for bulk cargoes of
shredded scrap and industrial steel scrap like busheling and bundles delivered
to the U.S. Gulf Coast ports. That’s too high even when compared to the prices
southern mills paid for busheling from the Midwest, said one broker. Also, scrap
supplies have tightened up in Europe as well. Shredded bought from a European
yard today might not arrive until June, he said and noted that U.S. prices could
be dropping at that time.
Much of this current scrap buying
binge is driven by the EAF-based flat-rolled mills and increased demand for
their steel products. Indeed, some of these mills are making steel not
only for themselves but also for their integrated rivals! Shutdowns of the melt
shops at three major integrated mills in the past year have left them unable to
produce enough steel to fill their orders.
Even then, the EAF mills may
not be able to fill all of the integrated mills’ needs. They may be looking
overseas for more, if the latest steel import figures from the U.S. Commerce
Department are an indicator. Imports of semi-finished steel, which includes
slabs that can be rolled into sheet products, skyrocketed in the past month to
709,590 tonnes. That’s a whopping 366% increase from the 151,970 tonnes brought
ashore in February and almost double the 376,322 tonnes imported in March of
last year.
Export demand is stronger and dealers expect dock
prices to rise at mid-month.
The EAF-based flat-rolled mills may have the
biggest appetites for scrap now, but they face formidable rivals for some of
that melt material. U.S. scrap exporters are reaching out to scrap yards
in the East and even as far inland as Ohio. They are now paying competitive
prices for heavy melt and the less desirable grades of heavy melt that dealers
call “light iron.” Many domestic mills won’t use that scrap. Dealers usually
sell that material to shredders as feedstock. But that “light iron” can meet the
less rigorous spec for export 80/20 heavy melt.
A European exporter booked an order from a
Turkish steel mill on Friday at $265 per tonne delivered to a Turkish
port. That’s up about $25 per tonne from deals made earlier in the week.
Demand for Turkish rebar, both at home and overseas has risen, but supplies of
scrap from both U.S. and European suppliers have tightened up.
An East Coast trader predicted that the next
sales from the U.S. will be higher. The East Coast exporters will have to
pay more to take scrap away from U.S. mills. Also, he said Turkey isn’t the only
region where scrap demand is on the rise. Steelmakers from several Asian
countries are looking for more scrap and paying higher prices for it. Prices for
shredded scrap in containers climbed to $245 per tonne delivered to an East
Coast dock. This is putting yet another crimp in the already tight supply of
shredded scrap.
While the flat-rolled mills are gobbling up every ton of
scrap they can find, many long products mills, particularly the pipe and tubing
makers and others that depend on the oil and gas drilling industries, aren’t as
hungry. Many have raised their prices this month to keep some scrap from leaving
their local scrap reservoirs. But some of their suppliers have to look elsewhere
for markets for their scrap. They didn’t have to go too far. Dealers with docks
along the major waterways are the favorite targets of brokers looking to ship
scrap by barge to mills in the South.
Brokers and mills that can provide their own rail cars to carry scrap from remote scrap yards have little or no trouble paying higher shipping point prices to those distant dealers. It’s probably less than they are paying local scrap suppliers on a delivered-to-the-mill basis and helps them avoid putting more pressure on the local scrap market. That might encourage those nearby dealers to demand higher prices.
The flat-rolled mills probably will buy as much scrap in May and even more in June because of the auto industry summer vacation shutdowns in July. Even if the automakers take a series of rolling shutdowns, closing some plants for a week while others continue to run, that will nevertheless reduce the supply of busheling and bundles at a time when some steelmakers are likely to need more scrap.
U.S. Shredded Scrap Thermometer: Why supply remains tight.
Finding enough shredded scrap is an on-going challenge for many steelmakers, and the problem isn’t simply a shortfall in the supply of the feedstock to make it. There are an ever increasing number of scrap consumers using more of the fragmented scrap these days. Almost all EAF-based mills use shredded and for many of the long products makers it is the main element in their charge buckets. But the demand pressure is also coming from several other consumers as well. These include:
Integrated steelmakers never used shredded scrap in the past because they considered it too contaminated with copper and other so-called tramp elements. Today, however, thanks to the advanced recovery systems at many shredders, the level of copper and other elements is much lower and the big mills use the shredded both as a coolant and as a way to increase the output from their BOFs.
U.S. West Coast dealer export several grades of ferrous scrap in containers, but containerized scrap shipments from East and Gulf Coast ports are mainly shredded scrap. Shippers in these regions rely on getting more tons of shredded in smaller containers and thus lowering freight costs to distant ports. Also, some offshore buyers only want or can only afford a few thousand tonnes of scrap and not a full-size 35,000- or 40,000-tonne bulk cargo.
Supply of busheling and other industrial steel scrap depends on the output of stampers and other manufacturing plants. Raising those prices doesn’t generate more busheling, it only enables some mills to take supply away from other steelmakers.
Shredded output hinges on the price of feedstock, however. Pay auto wreckers
and smaller scrap dealers too much, and they’ll flood shredders with material.
Cut buying prices drastically as many mills did in the second half of last year,
and the flows of feedstock slow to a trickle.
Shredded scrap supplies may be constrained, but some steelmakers have found
other “wild cards” to offset these shortfalls. These include:
Rebar makers and other mills producing steel products with less demandingchemical or metallurgical specs tap into the supply of less desirable grades like mixed machine shop turnings and municipal scrap. They don’t abandon using shredded, but work to minimize their demand when supply is tight.
Historically, buying busheling at a discount to shredded scrap was a rare
phenomenon in the ferrous scrap market, but it has become more commonplace in
the past year. For long product mills in industrial scrap surplus regions like
Detroit, this has enabled them to reduce their usage of shredded, and consume
more of the higher quality steel scrap without paying a higher price for
it.
NASDAQ OMX Commodities (Stockholm) has rescheduled the start of trading in the Midwest US shredded scrap index futures to Tuesday April 26. The contract will trade in 20-gross ton units with the prices settled on the 11th day of each month against the TSI Midwest US Shredded Scrap Index. For additional information about shredded futures trading, contact John Conheeney at WSEM. His phone number is 201-503-0922 and his email is jconheeney@wsemgroup.com.
Note: Each issue, Mike Marley gives his opinion on the one-month steel scrap price outlook. He explains the key reasons for his view and highlights the “wild cards” that might cause him to be wrong.
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