Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Weakening exports and a mild weather are leading to inconsistencies in domestic ferrous prices even as steel production increases as the market heads into the second month of 2020.


The US market peaked in January before weak sentiment took over after scrap export prices to Turkey declined. Overseas buyers are currently avoiding weaker US ferrous scrap price offers; a factor that could impact domestic price drops in Feb.


However, a strong demand from US steelmakers could uphold prices inland in areas that are far enough from major bulk exporters. Bids for US export material were not as attractive as January domestic mill buying prices, creating a gap between export and domestic prices in January that was, in some cases, as much as $35/gt ($34.5/mt). It remains to be seen if other areas of the market such as increased production and strong inland demand can close that gap in February.


US East Coast bulk exporters have decreased collection prices by about $10/gt for two straight weeks. HMS 1&2 (80:20) delivered East Coast dock, dropped Tuesday to about $225/gt from around $245/gt, early last week, with some sellers indicating to Davis Index that they would not move any tons to the docks at that level.


After increasing prices throughout December and early January, steel producers have announced fewer price increases for finished steel indicating a downward trend in February ferrous scrap pricing. However, raw steel output has been rising in the US, according to data released by the American Iron and Steel Institute on Jan 20.


Severe weather often prevents inbound flow of scrap, tightens supply and supports higher prices typical for this time of the year. But winter weather has been mild so far, contributing to increased supply from greater inbound flows to recycling yards. The domestic market strengthened between October 2019 and January 2020 totaling $80/gt increases or more for ferrous scrap, also generating more flow to the supply side.


For the past week, scrap dealers and consumers have been projecting domestic ferrous scrap prices to decline $10-20/gt for February trade, which may lead to less support for steel input prices and hurt finished steel profits.


The domestic flat rolled market is slowing amid downward price pressure this week, however, the long products sector experienced fewer price increases compared to flat rolled, so may face less of a decline. If that occurs, it could place flat products into a stronger position entering Q2 and increase metal spreads even with dropping scrap prices.

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