May 25, 2017 09:19:48 PM
WSEM World Steel Exchange Marketing
Mike Marley’s Shredded Power #97
Regional factors drive ferrous scrap price changes.
May 25, 2017
Mike Marley (484) 751-5600
Peter F. Marcus (201) 503-0902
Dealers are facing two hurdles in their efforts to complete this month’s shipments to the nations’ steel mills. First, is the lack of obsolete cut scrap. Grades like No. 1 heavy melt and five-foot plate and structural scrap are in tight supply in several regions. Second, is the shortage of gondola railcars. Even dealers who have their own or leased cars said they are not getting these back as quickly as expected.
The mild winter weather which kept obsolete scrap flowing into dealers’ yards in February and March is partly responsible for the supply shortfall. So is the rising price spread between prime industrial grades and the obsolete scrap. It is now as high as $85 per gross ton in some areas of the Midwest.
Consequently, several integrated steel mills that normally buy industrial bundles,
are using more plate and structural scrap and heavy melt to keep a lid on their raw materials costs. Indeed, according to one Chicago area broker, one local BOF melt shop is using cheaper but previously shunned scrap like machine shop turnings in its melt mix.
In prior years, the big mills rarely used any scrap other than bundles and P&S because of their concerns that residual nonferrous elements would contaminate the steel. But the growing appetites of the newer EAF-based flat-rolled mills have driven up the cost of industrial steel scrap. Now, thanks in part to the import restrictions that have benefitted both BOF and EAF sheet mills, domestic demand for the fixed supply of industrial steel scrap has risen sharply in the past year and so has the price.
For the EAF steelmaker, industrial scrap is a must-have material. A BOF melt shop, on the other hand, uses only about 20% scrap to make its steel, mainly as a coolant. Also, melters at some BOF-based mills believe they can rely on the purer iron from their own blast furnaces to dilute the contaminants in scrap to acceptable levels.
The availability of the cut scrap varies from region to region. Much of the supply of P&S comes from major demolition projects while heavy melt comes from several sources-smaller dealers and peddlers, cleanout work and even some demolition projects. The current supply is adequate in some areas and absent in others. This month, for example, mills in eastern Ohio and western Pennsylvania paid an additional $15 to $20 per ton to bring plate and structural scrap from East Coast cities where more P&S is available.
Are both steel mills and railroads responsible for the gondola car shortages?
Not having enough scrap to ship to the mills is one problem; not having the means to deliver it is another. Several dealers have complained that they are not getting enough cars from the railroads to fill the orders they have taken this month. Typically, this usually applies only to the railroad’s own gondola cars, but now dealers who own or lease gondola cars, said they are not seeing those as well.
One Eastern shredder operator said several of his cars have been sitting in a major railroad’s switching yard for a week or more, and he’s not sure when they will be returned. The railroad also has not offered him any of its cars which has forced him to use independent truckers to haul shredded and other scrap to some mills. It takes about four trucks to carry the same tonnage that can be shipped in a single gondola car. Also, many truckers will limit the distance they will travel unless they can book a backhaul to pay for the trip home.
A Midwest trader said this isn’t just a problem for the shredders. Dealers in his region that have sold bundles and busheling to flat-rolled mills in the South are affected as well. In a city like Detroit, he explained, much of the scrap sold to local steel mills is shipped by truck, but the orders to mills in other regions must go by rail. Likewise, he said, dealers in the upper Midwest who ship scrap by barge are facing problems on the river as well as on the rails. Flooding closed the shipping to destinations on the Mississippi River south of St. Louis for the first two weeks of May.
The transport bottlenecks can be an even bigger problem for the Eastern dealers who sold scrap on a springboard basis to mills in the Midwest and the South in the past two months. Their cars, as the shredder operator noted, may be stuck at a railroad switching yard or on a short line railroad siding.
Or they may be held up at a steel mill. Some mills delay unloading cars they know are owned or leased by dealers because they won’t have to pay demurrage on those. They will unload scrap delivered in a railroad-owned car even if it arrived after the scrap in a dealer-leased or owned car. After a certain number of days, said a Chicago area trader, the railroad will impose a demurrage charge, usually about $100 per day, on the mill for its cars. Also, he added, some mills will hold on a dealers’ cars for a few extra days and use them on its own property to carry scrap from its storage areas to the scrap bay in the mill.
Flat-rolled steel prices are still sliding and auto scrap output will be lower.
Flat-rolled steel prices continue to spiral down. Spot market prices for hot-rolled coil have slipped to below $600 per net ton and order lead times are now as short as three weeks at some mills, industry sources said. Cold-rolled and galvanized sheet prices also are weakening. These are down to as low as $750 per ton and their lead times are between four to six weeks.
Despite the apparent slowdown, overall domestic steel production bounced back last week. Raw steel output totaled 1,741,000 net tons last week, according to the American Iron and Steel Institute, up 0.8 percent from the 1,728,000 tons produced the previous week. The industry’s capability utilization rate rose to 74.7% from 74.1% a week earlier.
One flat-rolled mill buyer said he believes domestic steel users are concerned about the federal government’s upcoming Section 232 trade investigation which will try to determine if steel imports are affecting the national security. Steel buyers are keeping their inventories to a minimum until they can estimate what impact the probe will have on imports and steel prices, he said.
And the EAF flat-rolled mills have a new supply problem to wrestle with in June and July. Several of the automakers will close their stamping and assembly plants for two weeks this year instead of one week. The one-week closures have been the trend in recent years when car sales were rising. Sales have plateaued in recent months and inventories of some models have risen. The extended shutdowns are aimed at lowering oversupply.
One Detroit area trader said the shutdowns probably will also include auto industry component makers. That could reduce overall supply of bundles and busheling by between 30 and 40% during the next two months. Some EAF sheet mills have taken steps to cope with the forthcoming supply decline by importing bundles and busheling from Europe and Canada in addition to buying more industrial scrap from local suppliers.
Offshore ferrous scrap demand remains offshore... far offshore.
One U.S. East Coast exporter sold a cargo to a Turkish mill last week, but there has been little or no activity since. The latest sale was a 30,000-tonne split cargo of 80/20 heavy melt and bonus grade (five-foot plate and structural scrap). The price of the heavy melt was estimated at $273 per tonne delivered to a Turkish port. That is up about $10 per tonne from the prior deal.
There was no shredded scrap in either of the two recent sales. It’s unclear whether that reflects a decision on the part of the Turkish mills not to use shredded from their U.S. suppliers, or whether the East Coast exporters are withholding it from the offshore market because they can net a higher price selling it to mills in the U.S. Some Midwest mills paid as much as $305 per gross ton for shredded scrap this month. Minus rail freight costs of $40 per ton put the shipping point price at $265 per ton. That’s almost $20-per-ton higher than the price they can net from their offshore deals.
Shredded and bonus grade scrap are the only major steelmaking grades that the exporters can sell to most U.S. mills. Their 80/20 heavy melt doesn’t meet most U.S. steelmakers’ specifications for No. 1 heavy melting steel scrap. Also, the East Coast exporters and coastal shredders have carved out a niche of their own in the domestic market in recent years by selling shredded to mills in the southeastern U.S.
Buying prices at the East Coast docks are unchanged. The smaller local yards are getting about $205 per ton for export heavy melt while the larger or distant yards can obtain as much as $225 per ton, said one East Coast trader.
Shredded Scrap Thermometer: Shredders’ bumper crop.
Shredded, unlike busheling and cut grades, is plentiful in several regions of the country. On the one hand, that’s no surprise. Shredded usually is abundant in the spring, but it is usually accompanied by a flood of the other obsolete grades like heavy melt, and plate and structural scrap. That’s not the case this year. The cut grades are in tight supply even though there is no strong demand from the export market for these grades of ferrous scrap. There are several reasons why some melters may be happy to have shredded as a supply cushion. These are:
• In addition to enough supply of the fragmented scrap, the price is right. Shredded is selling at a discount to its rival busheling. It is available at prices which are from $50 to as much as $85 per ton lower than what several mills paid for busheling earlier this month.
• If the EAF flat-rolled mills tweaked their melt mix to use more shredded and the long products makers used more as a substitute for the hard-to-find cut grades, dealers could still bolster the supply. Shredded has a more diversified supply base and they have room to raise their feedstock buying price.
• Shredded can still fulfill part of the function of the heavier grades of cut scrap, namely to provide more density to the to the furnace charge and thus raise the volume of raw steel produced by an EAF.
Shredded, though it is probably the most widely used grade of ferrous scrap, still has a few drawbacks that can make it a “wild card” in the supply deck. These include:
• Shredded supplies can vary from region to region, with the bulk of shredded produced in the densely populated regions like the northeastern states like New York and New Jersey where there are fewer steel mills. Thus, mills in the South and south east often must pay higher freight charges to bring that scrap to their region and the current problem of finding enough railcars to carry that material.
• Coastal shredders and some exporters can be lured by more lucrative offshore offers, particularly from the foreign traders buying shredders in containers. Selling a few thousand tons in containers may not seem like a problem until they can find added feedstock and are short on filling their domestic orders by month’s end.