The outlook for ferrous scrap prices in April is mixed. Dealers are expecting a “soft sideways” to slightly lower market for shredded scrap and other obsolete grades, and an unchanged market for busheling and bundles. Most steelmakers and brokers are in agreement with the dealers on industrial scrap prices...
WSEM World Steel Exchange Marketing
Mike Marley’s Shredded Power #88
Prices softening, but mills are troubled by slow deliveries.
March 22, 2017
Mike Marley (484) 751-5600
Peter F. Marcus (201) 503-0902
The outlook for ferrous scrap prices in April is mixed. Dealers are expecting a “soft sideways” to slightly lower market for shredded scrap and other obsolete grades, and an unchanged market for busheling and bundles. Most steelmakers and brokers are in agreement with the dealers on industrial scrap prices, but some anticipate a correction of as much as $20 per ton for the obsolete grades. That would bring prices closer in line with the current offshore market and with what they expected to pay earlier this month.
Industrial steel scrap prices rose by $60 per ton in March, but that didn’t bring out more of this scrap. It did, however, prod some mills to outbid each other for the available busheling and bundles. Some paid more competitive prices and took local scrap away from rival mills or purchased more from dealers in regions where there is less demand for prime scrap. Others have shifted their melt mix, reducing busheling consumption while boosting the use of shredded scrap and pig iron. And a few U.S. mills have been shopping in the UK and western Europe for industrial scrap.
Heavy melt and shredded rose this month, but only by $40 per ton. Also, U.S. exporters sold three bulk cargoes to Turkish steelmakers a week ago and the bellwether 80/20 heavy melt price rose by $18 to $303 per tonne delivered to a Turkish port. In the view of some traders, that pointed to a further rise in these prices, but that was short-lived. Overseas demand and prices instead are weaker in both Turkey and Asia. There were no more bulk cargoes sales to Turkey from the U.S., but a Canadian exporter sold higher quality 90/10 heavy melt this week at $280 per tonne and several other European shippers have made new deals with Turkish mills at lower prices, sources said.
Stronger domestic scrap demand and that hoped-for rebound in overseas sales helped East Coast exporters and shredders to persuade mills in Ohio and Indiana to pay as much $330 per ton for shredded scrap. Whether dealers will be able to maintain those prices going forward is doubtful. With shredded now at about $283 per tonne for some European cargoes delivered to Turkey, some U.S. brokers believe shredded scrap from the East Coast to those inland mills could slip below $300 per ton.
A U.S. export trader said the U.S. East Coast export prices have peaked and predicted that the prices in Taiwan will follow the Turkish decline. No recent sales have been booked to Taiwan, he said, but the offers from those mills now are lower. One consequence could be that U.S. exporters and coastal scrap yards will abandon the offshore market again and offer more shredded and plate &structural scrap to U.S. mills. That’s what many did this month.
Indeed, he added, they may offer even more tons since April is the start of the Spring thaw and that could bring out more obsolete scrap. One potential sign of weaker prices came from a major Eastern shredder last Friday. It sent notices to suppliers that it was cutting shredded feedstock prices by $20 per ton.
The slower pace of deliveries is worrying some steel mills and brokers.
But scrap brokers and steel mill buyers in the Midwest also are worried that scrap purchased earlier this monthwill be late in arriving to their mills. This includes not only the shredded scrap, but also the busheling and cut grades like plate & structural scrap.
A northern Ohio broker said the concerns aren’t simply a result of the storm that covered much of the upper Midwest, East Coast and New England area with a foot of snow last week. Dealers are having trouble getting enough railroad gondola cars and are worried that the railcars carrying scrap to the Midwest mills won’tbe returned to the East Coast soon. If so, fewer cars will be available for scrap shipments in April. Many of these cars are out of their usual transport loop and could be diverted to other regions, he said.
The major exporters don’t have their own railcars other than those used to carry auto shredder residue (fluff) to landfills in New Jersey and Pennsylvania. When selling in the U.S., exporters rely on barges if they are shipping to coastal mills, and they use the railroads when shipping scrap to mills in the Midwest.
Even scrap dealers with their own or leased cars have problems getting their cars back quickly from some mills, said a Midwest trader. The mills will sometimes delay unloading as a means of conserving cash given that the timeline for paying the bill may not start until the scrap is inspected and unloaded. Also, he noted,mills will unload railroad-owned cars first because theywill be charged demurrage on those and not on the cars owned by a scrap broker or dealer. An Eastern broker said his company’s freight department usually begins badgering him to get its railcars back home within a few days of its shipments arrival at some mills.
Late shipments can be either a blessing or a curse for steelmakers. If they are running out of key grades like busheling, a mill may have to make an emergency buy at a premium price and have that scrap shipped by truck regardless of the cost. But if prices are unchanged or rise, some mills won’t cancel unshipped orders and will expect the scrap to be delivered in the first or second week of April. They thus keep a flow of material en route to the mill while they haggle over prices.
Even if prices drop, as many expect for some of the obsolete grades, some mills may not cancel undelivered orders. Their inventories may be too low, and if prices decline by only $5 per gross ton or less, it may be worth keeping that scrap coming to the mills.
The pace of steel output and scrap shipments vary from region to region.
A Pittsburgh-based trader said many of the East Coast yards actively offered a lot of scrap to mills in western Pennsylvania and eastern Ohio, but the pace of shipments in the past week has been hit-and-miss. Some are on time with their deliveries, he said, while others are not.
He believes some dealers may have offered scrap they didn’t have or subsequently got higher offers and resold elsewhere. Consequently, he said, some of the mills in the area are still interested in taking in more scrap simply to protect against any further slowdown in shipments.
In the Detroit area, however, one mill buyer said he sees a softer market in April. Prices will be off by between $10 and $20 per ton next month, he said. Output of shredded scrap and other obsolete grades has risen, largely because of the mild winter weather. Yet much of that scrap didn’t get sold and is still overhanging the market. The result will be a selloff of the obsolete grades by as much as $20 per ton below the current prices, he predicted, and the industrial grades will dip by about $10 per ton in a sympathetic decline.
He has not seen any late or delayed deliveries to his mill, he said, but most dealers are focused on getting all the tons shipped as quickly as possible. That suggests that dealers are worried that prices may plunge in April and that they could be stuck with expensive scrap if those orders are canceled. Also, he added, some have begun lowering their scale prices. Their inbound flows are still strong and they want to reduce those. Or, he added, they may be expecting intake to rise even further as the warmer spring weather arrives.
Domestic demand for busheling and bundles set the market’s pace this month. But some brokers argue that the $60-per-ton rise was simply steel mills throwing more money at dealers, either to take away scrap from rivals or to keep bundles and busheling from leaving their local yards. Higher prices don’t produce additional industrial scrap. That output is determined by the pace of auto sales or other manufacturing activity.
Now, several sheet steel producers that are the major consumers of industrial scrap have hiked their hot- and cold-rolled sheet prices to pay for those higher scrap prices. If these sheet steel increases stick, the mills may be less inclined to lower the busheling and bundles prices next month and face demands for lower steel prices from their scrap price aware customers.
Also, many of the long products mills that were not busy a few months ago, are now. They are buying more scrap, including bundles and busheling. Most of these mills are EAF-based unlike the flat-rolled business, which is still about evenly split between the EAF melt shops and the BOF-based integrated mills that use much less scrap. Some steelmakers may be busier, but that was not reflected in the latest report from the American Iron and Steel Institute. Domestic raw steel output reversed course and slipped to 1,747,000 net tons last week while the industry’s capability utilization rate dipped to 73.7%, the AISI said. That is down 44,000 tons or 2.5% from the 1,791,000 tons produced the prior week.
Shredded Scrap Thermometer: A shredded scrap surge.
Dealers are worried that shredded scrap may soon be pilling up in their yards. The decline in overseas demand for ferrous scrap, particularly from Turkey, has spurred some exporters and coastal shredders to look for other homes for their scrap. This has included many of the domestic long products mills that have seen an uptick in orders for their products as well as the flat-rolled producers who have been running flat-out for the past year. The excess supply problem isn't simply the absence of overseas demand. There are intrinsic troubles in the industry and its markets. These include:
• Despite closures and the "idling" of some shredders, there is still an overcapacity problem in the domestic scrap processing industry. It isn't simply that there are more than 350 shredders in the U.S. Many of the newer machines are huge and can produce three or four times more scrap than their predecessors.
• Shredded output is also a function of price. Auto recyclers, small scrap dealers and even the pickup-truck peddlers are aware of the ups and downs and are not averse to playing one shredder operator off against another to get better offers for their feedstock.
• Export yards typically produce only one product that domestic mills will accept - shredded scrap. When there is less demand for their 80/20 heavy melt, some exporters will push that material through their shredders. Others have done the same with higher quality steel busheling when its price was low and too many tons were still coming across the scales each day.
• Shredded supply is also influenced by weather. With the exception of last week, the mild winter this year combined with the higher prices paid by some this month, has drawn a lot more scrap into dealers' yards during the past month - scrap that in some regions must now compete with cheaper material from the coastal areas.
If shredded scrap prices drop by as much as $20 per ton or more in April, it won't be doomsday for all shredder operators. There are other market forces that can bolster demand. Two of these wild cards are:
• The busheling price premium over shredded is now as high $70 per ton in some regions. That's high enough to persuade some melters to change the scrap mix in favor of the cheaper and/or more abundant supplies of shreddedd scrap.
• Long products mills like the tubing and pipe makers are major users of the shredded scrap and it's been the rise in demand for their products that has led the increase in domestic steel output in the recent months.
The Nasdaq Futures Exchange (NFX) expects to start trading in the Midwest US shredded scrap index futures mid-year 2017. 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 published by Platts. For additional information about shredded futures trading, contact John Conheeney at WSEM. His phone number is 201-503-0922 and his email is email@example.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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