By Paul Ploumis (ScrapMonster Author)
March 15, 2016 05:07:00 PM
WSEM - World Steel Exchange Marketing - Mike Marley’s Shredded Power #36
Export demand takes over; prices could rise in April.
March 15, 2016
Mike Marley (484) 751-5600
Peter F. Marcus (201) 503-0902
All but the fluff - Commentary
Domestic steelmakers would buy more scrap now if it was offered at current prices. Unfortunately, said an Eastern broker, few dealers are willing to sell more. They haven’t yet pocketed the $10-per-gross-ton increases gained in this month’s scrap sales, he said and a few still owe tons from February orders. Yet, many are already banking on another price hike in April, possibly by as much as $30 per ton.
Such mid-month guesstimates probably will be revised as the end of the month approaches. Still, there is a widespread consensus that the prices and demand are not going down in the near term. Whether that includes the other months of the second quarter as well as April is uncertain. Forecasts from dealers and traders in the industry normally don’t extend much further than the next month to 45 days.
These greater expectations have been stirred by the larger appetites displayed by domestic EAF-based sheet mills and their decisions to reach out to distant suppliers. Add to that a spike in buying prices in Turkey and a resurgent demand in Asia. U.S. scrap traders see that as another sign that the tide has turned for scrap prices and demand.
Deals with European suppliers have raised the 80/20 heavy melt to $215 per tonne delivered to a Turkish port. That is up by about $40 per tonne from a month ago. The Europeans have been the sole beneficiaries of this new business in Turkey thus far, largely because U.S. exporters have little inventory. Because of the weakness of Turkish demand prior to this latest buying binge, U.S. exporters sold much of their scrap to domestic mills and cut their buying prices. They aren’t competitive with the prices domestic mills are offering.
That’s why U.S. exporters now are looking for as much as $230 per ton for heavy melt from their Turkish customers, an East Coast trader said. That’s $10-per ton more than the Turkish mills are willing to pay, yet the U.S. exporters believe they need higher offshore prices to enable them to buy more scrap and maintain a profit.
The exporter snow are paying about $140-145 per gross ton to local yards for heavy melt and about $160 per ton to the larger dealers in inland regions. One eastern Ohio dealer said that hasn’t persuaded him to sell them much. Supplies of heavy melt and shredded are tight and they’ll have to pay more to take it away from the domestic mills, he said.
Shredded scrap normally commands a $5 per tonne premium over 80/20 heavy melt in the offshore market. That would put it at about $220 per tonne as part of the cargoes bought from European suppliers, and Turkish mills might be willing to pay as much as $225 per tonne. With stevedoring and ocean freight costs for a bulk cargo from the U.S. at between $25 and $30 per tonne, that would lower the price on the docks to about $195-200 per tonne.
But U.S. exporters and coastal suppliers already have more attractive offers from several Indian traders. They are offering as much as $210 per tonne at the dock for containers loaded with shredded scrap, at least $10 above the price exporters can get from Turkey.
In addition to India, prices are climbing elsewhere in the Far East. Taiwanese mills hiked their offers for containerized shipments of 80/20 heavy melt to $180 per tonne delivered to their ports, up about $10 per ton from a week ago and the second price increase in as many weeks. One U.S. trader said Asian scrap demand and prices had reversed course after being in a buying funk for the past year.
He attributed this to a recent increase in iron ore prices and Chinese steel traders’ decisions to limit offshore steel sales, not only to Taiwan but to other countries in the region as well. He believes the Chinese mills are trying to eliminate their losses on steel. Several have been relying on cash flow and bank loans to pay workers’ wages and operating costs. Mills in Japan, South Korea and other Asian nations are buying more scrap and boosting their raw steel output to offset those steel shortages and higher prices for their Chinese billet.
But the rise in offshore scrap demand troubles U.S. mill buyers and their brokers. Some failed to get as much as they wanted this month and contend that dealers held back scrap after realizing that mills were looking for more tons. One dealer offered 1,000 tons of busheling early in the buy week, said a Pittsburgh area broker, but later backpedaled. When the time arrived to finalize the deal, he only had 750 tons. On the other hand, dealers argue that intake of obsolete scrap is still poor because of low prices in recent months. An Eastern dealer said he could offer half of what he expected to have, in part because he still owes so much scrap from last month’s sales.
Local scrap prices in the Midwest and South were up by an average of about $10 per ton last week, but those gains masked the frenzied long-distance purchasing by the flat-rolled EAF mills. Springboard buys from scrap suppliers in the western states and New England hiked some mill-delivered prices by more than $40 per ton. Part of those increases included higher freight costs from these distant scrap yards.
Increased domestic steel demand may also account for that spike in scrap demand and prices. The new duties on foreign flat-rolled steel products, particularly cold-rolled and galvanized, may be spurring U.S. steel users and service centers to buy more domestic steel. But others argue that the closures of some of the domestic integrated steel industry’s facilities has shifted sheet demand to the domestic EAF-based flat-rolled mills.
Regardless of the reasons, dealers said shredded scrap, heavy melt and other obsolete grades are still short in many regions. Scale prices at many yards have been unchanged for months, said a Chicago-based trader, and have discouraged peddlers and other scrap suppliers even more than the winter temperatures and infrequent snowstorms this year.
That could change in coming weeks, though. Shredders in the competitive northern Ohio market, for example, have raised their buying prices for feedstock by$15 per ton in the past week, more than the average gains in the mill buying prices this month. Some now are paying $130 per net ton (or about $143 per gross ton)for feedstock. Such increases have earned derision from their counterparts elsewhere. “They complain about margins,” said one trader in the Southeast who has not raised his buying prices. “They get an increase and now they can’t wait to give it away.”
Busheling and other industrial steel scrap had been plentiful until this month, but now even those supplies are tight. Industrial scrap had been trading at a discount of as much as $20 per ton to shredded scrap for several months; it is now at the same price in several regions. Detroit, where the pace of production at the auto plants and their component makers remains strong, is still an exception.
Local prices for busheling range from $185 to as much as $205 per ton on a delivered to the mill basis, but higher offers were made to distant suppliers. Shredded prices have soared to as high as $220 per ton in Chicago, but demand there is influenced by mills at the lower end of the Mississippi River. Local mills in the Chicago area, including some of the integrated steelmakers, had to raise their offers to keep some of that scrap from leaving town, said a Chicago-based trader.
Demand may be stronger for busheling and other industrial steel scrap, but has not risen to the levels that would restore the traditional busheling premium over shredded scrap. But some believe that could occur in April if the flows of obsolete rise as much as they are expected to do in the spring months. Some traders question whether these spring scrap floods will occur this year. Auto wreckers and smaller scrap yards may continue to hold back shreddables from the bigger scrap processors next month. Like some scrap dealers, they may be banking on another increase in prices by the mills in April and waiting for the shredders and others to boost their buying prices.
U.S. Shredded Scrap Thermometer: Is export in command now?
Battle lines are drawn in the three-ways competition between domestic steelmakers, dealers and offshore mills for the price-constrained and seasonally short supplies of shredded and other obsolete scrap. Such conflicts were common five years ago when scrap exports totalled to as much as 24million tonnes per annum, but have been rare and short-lived in recent years. U.S. exports last year totalled about 13 million tonnes. Weaker foreign steel markets and excessive supplies of Chinese steel have been moderating forces. That has shifted and the potential restart of past practices could trouble steelmakers and again empower scrap dealers. These included:
Coastal steel mills and even some in inland regions had to battle exporters for heavy melt and shredded scrap when offshore demand was stronger in past years. Some mills abandoned their practices of setting a single price at the beginning of the month. They often had to hike their offers two or three times a week in response to word that the exporters were raising prices to build inventory at the dock and avoid potential demurrage expenses incurred when the vessel must wait to be filled.
Export yards are set up to sell and ship scrap to foreign steel mills primarily. When they’re selling into the domestic market, rival dealers argue that they undermine their bargaining power. In past years, dealers in an inland region were sure they would see price increases of $40 or $50 per ton only to find that the local mills had bought much of what they needed from exporters or other coastal scrap yards.
Some domestic steelmakers now depend on export yards and coastal scrap dealers to fill a portion of their melt needs every month. This month, however, there was not as much scrap available there. Intake may still be poor, said one Eastern mill buyer, but some dealers may also be awaiting more lucrative offers from a foreign steelmaker or scrap trader.
Some traders believe the only certainty about the offshore scrap market is its uncertainty. Some “wild cards” demonstrate how unpredictable this scrap market can be. These are:
Despite reports about cutbacks in capacity, China’s 800-million steelmaking juggernaut probably won’t shed as much of its excess capacity as some expect. If scrap prices rise sharply and Chinese mills believe they can obtain higher prices for their steel, they may choose to export more. That could quickly depress offshore demand for scrap.
NASDAQ OMX Commodities (Stockholm) will begin trading in the Midwest US shredded scrap index futures on Tuesday March 29.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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