June 05, 2017 08:38:29 PM
WSEM World Steel Exchange Marketing
Mike Marley’s Shredded Power #98
Tight industrial scrap and late deliveries impact prices.
June 1, 2017
Mike Marley (484) 751-5600
Peter F. Marcus (201) 503-0902
Many dealers and brokers are anticipating a “soft sideways” move in ferrous scrap prices this month in the domestic market. That usually means unchanged prices to down $5 per ton, but that could vary from region to region. Some believe the steelmakers in the South will be trying to trim their offers by as much as $15 per gross ton, especially if one or two of the big EAF-based flat-rolled mills are bringing in as much imported industrial steel scrap as some have reported. In the North and Midwest, however, prices could be unchanged to higher because of the mills’ concerns about tight supplies of busheling and bundles this month and in July.
There was little or no buying activity by midweek other than some price-to-be-determined (TBD) deals by a few steel producers. These were done to ensure a steady flow of scrap to their mills while the price negotiations were underway this week. Even if there are a few deals made later this week, most steel and scrap industry members expect much of the buying won’t get started until next week.
Scrap order cancellations have been few as May ended. One Chicago area mill cancelled only its unshipped purchases of shredded scrap. Two mini-mills in the South voided deals. One cancelled a small order of alloy scrap and the other nixed several delayed shipments of obsolete grades. In other words, there were no reports of across the board cancellations, an indication that steel and scrap demand is still good and that scrap prices may be unchanged to slightly higher in some regions.
Mills in the North and Midwest have enough scrap on the ground, several traders said, but EAF-based sheet makers are concerned about supplies of busheling and bundles. Several auto stamping plants and many of the auto industry’s component makers will shut down for at least two weeks this month or in July. In recent years, because of the strength of auto sales, most plants closed for only one week for summer vacation and retooling. The auto industry isn’t collapsing, said one Midwest trader, but the carmakers are concerned because of the number of unsold cars and trucks sitting on dealers’ lots.
Railcar shortages are an on-going problem for many dealers and mills in the North and the Midwest. Some traders believe several mills in the Midwest are content to leave scrap prices at current levels because they are still owed scrap from last month, especially the tonnage bought from remote suppliers in the East. Shipments are delayed because dealers can't get enough railcars, not only the (railroad-owned) cars but also their own cars and those leased from others. They can use trucks for shipments to nearby mills, but these are too expensive when the mills are far away.
Dealers who have their own or leased railcars may be feeling the transport squeeze more acutely than others. First, some mills don’t unload those cars as quickly as they do the railroad-own gondola cars because they must pay the railroads a demurrage charge of about $100 per day if they keep them too long. Dealers usually don’t impose demurrage charges on the mills. In addition to unloading the dealer-owned or leased car late, some mills will keep those cars for several days and use them to shuttle scrap from mill storage sites to the scrap bay where scrap is loaded into the charge buckets.
The mills aren’t the only offenders, said a Chicago area trader. Some railroads will delay returning dealers’ cars because they don’t make as much money on those cars as they do when dealers use the system or railroad-owned cars. And they earn even less if the dealer’s yard is served by a rival rail carrier. They must split the freight charges with that competitor. Also, he noted that it’s easy for the mills and railroads to identify leased or dealer-owned cars, which carry an “X” after the identification numbers on the side of the car.
Some dealers may tie shredded sales to mill demand for industrial steel scrap.
Fewer dealers are complaining about scrap flows into their yards these days, especially those buying and selling shredder feedstock. But supplies of cut grades like heavy melt, and plate & structural scrap are still tight in some regions where dealers said there is little or no demolition work.
There are mixed outlooks on shredded supply and demand this month. Some shredders are running full time and producing as much as they can. They may be betting that some mills won’t be able to obtain enough busheling and bundles this month. These steelmakers will substitute shredded for that material. Other mills may be unwilling to pay the higher premium for busheling. The price spread between busheling and shredded scrap was as high as $80 per ton in some regions in May and could widen even further this month if, as some expect, busheling prices rise and shredded drops.
One Midwest scrap broker said dealers with multiple shredders are worried because some flat-rolled mini mills won’t buy as much shredded this month. They are more concerned with obtaining enough prime industrial scrap. Integrated mills had been offsetting the higher-priced bundles with bigger shares of shredded, he said, but now they are cutting back as well and using more hot iron from their own blast furnaces. Consequently, he believes some dealers may link their sales of busheling and bundles to the tons of shredded that a mill is also willing to take.
Other traders said they are also seeing a modest reduction in the buying plans of some of the steelmakers producing steel pipe and tubing for the oil and gas drillers. A few mills have too much unsold finished inventory on the ground, said an Ohio-based dealer. Others have too much scrap still in the delivery pipelines, he said, and are cutting back their purchases this month in case they get swamped with late shipments in the next week or two.
Many of these mills are major shredded scrap consumers and the rebound in demand for their products has strengthened overall domestic steel output this year. Indeed, in its latest report, the American Iron and Steel Institute said U.S. raw steel production rose to 1,753,000 net tons last week. That is up 0.7% from the previous week when production was 1,741,000 tons. The domestic industry’s capability utilization rate climbed 75.2% from 74.1 percent during the earlier week.
Meanwhile, domestic flat-rolled steel prices are still drifting lower. One industry trader said the ongoing decline reflects a combination of weaker sales to automakers and steel service centers and some mills offering lower prices to fill holes in their production schedules. The spot market prices for hot-rolled coil are at an average of about $575 per net ton, but order lead times remain at three to four weeks, one industry trader said. Cold-rolled and galvanized sheet prices also are weaker.
Export business to Turkey is dead, but containers of shredded are going to Asia.
Export, at least the bulk cargo business, is not a factor because they have so few orders from Turkey these days. The Turkish mills are buying more scrap closer to home. They bought five cargoes in the past week from European exporters these days and paid an average of $270 per tonne delivered to a Turkish port for 80/20 heavy melt. That’s about $5 per tonne lower than the last sale made by a U.S. exporter more than a week ago.
Container business is better along the East Coast because the Indian steelmakers and others in Asia are paying about $270-275 per tonne for the shredded loaded inland in containers and dropped off at the docks. That’s competitive with the domestic mill prices for shredded on a shipping point basis; whereas, the Turkish import price for 80/20 heavy melt is not. U.S. exporters are paying between $210 and $220 per gross ton for export 80/20 heavy melt and are having a tough time competing with the domestic mills that are paying an average of $280 per ton for the higher quality No. 1 heavy melt.
Also, they would have to spend more time separating scrap grades in their heavy melt piles at the docks to meet the more stringent domestic mills’ requirements. And like many other scrap suppliers in the East, the exporters have a tough time getting railcars to ship their scrap inland. It’s easier to haul a container loaded with shredded scrap to the pier when railroad gondola cars are unavailable in coastal areas. The Asian mills don't buy much HMS and P&S in containers, at least not from the U.S. East and Gulf Coasts. They can't get the same volume in the smaller 20-foot TEU containers as they can with shredded and the cost for the larger 40-foot FEU containers is too expensive.
Shredded Scrap Thermometer: Offshore shredded demand weaker.
U.S. ferrous scrap export sales to Turkey may be headed for new lows, but more troubling for some traders was the absence of shredded scrap in recent bulk cargo sales. A Canadian exporter sold a cargo in May that included 30,000 tonnes of shredded, but two other cargoes bought from U.S. exporters last month were devoid of the fragmented scrap. One was an all heavy melt cargo while the other was split between heavy melt and bonus grade (five-foot plate and structural scrap). There may be some reasons for shredded to vanish from the Atlantic foreign trade route. These include:
• Stronger domestic demand particularly from the U.S. coastal mills in the Southeast. In recent years, this has become a substantial market for the East Coast exporters who have mega-shredders at their dockside yards and other Eastern shredders. Some have the option to ship large orders of several thousands of tons to those mills by barge or rail.
• The Turkish mills traditionally pay only $5-per-tonne premium over their 80/20 buying price for shredded scrap. In the U.S., however, shredded scrap can command a premium of as much as $40 per gross ton over the higher quality and higher priced No. 1 heavy melt. In May, for example, some U.S. mills paid $300 per ton on a delivered to the mill basis for shredded scrap and $260 for No.
1 heavy melt.
• The Turkish mills face some intense offshore competition for the U.S. shredded. Indian traders are active buyers of 20-foot containers filled with shredded from suppliers in all three U.S. coastal areas. They often pay prices that are higher than those from Turkish mills’ prices and competitive with the domestic mills’ offers on a shipping point basis.
Shredded probably will remain a key portion of ferrous scrap cargoes sold to Turkey for several reasons. Two are “wild cards” unrelated to the price of scrap. They are:
• Bulk cargo sales to Turkey without shredded are an anomaly. Usually, there is a portion of shredded in most deals with the Turkish mills, if for no other reason than to protect the bottom of the ship’s holds when the heavy melt and structural scrap is dumped into them.
• Most export yards prefer to sell much of their output overseas. They also can “salt” shredded into a ship hold after the heavy melt has been loaded. That increases the tonnage in the vessel and helps to lower shipping cost per tonne.