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

Ferrous scrap prices could trend strong sideways in the US domestic market in November, contrary to a soft market that was expected following the October ferrous scrap trade. 


Some industry participants anticipate prices to firm up towards a sideways to a small increase in November though others are less confident about an upward movement and predict a flat market in Q4 2020.


A few scrap yards have reported failing at sideways tags from October as some mills that were sidelined this month could firm up their buying plans over the next two weeks. A shift in the futures market, which has slipped down by around $10/gt over the week on prime scrap, is also adding to the uncertainty on November trade. As a result, some market participants predict a decline of $5-10/gt in some deals depending on the region.


Finished steel driving the market

Certain mills, whose order books are improving, are said to be influencing the market through their inquiries on November volumes. Orders for hot-rolled coil (HRC), cold-rolled coil (CRC), and rebar are in fact, defying expectations in terms of prices as well as demand from steel centers that were expected to taper. However, a few market participants have expressed hesitation about orders continuing to flow at the same level in November and HRC prices are indicating the first signs of potentially dropping off next month. 


Interestingly, South Korean, Turkish, and Indian companies that export finished steel to the US note that their January and February order books, also at firmer prices, are filling quickly with US-based buyers pointing to the likelihood that finished steel prices may not decline in Q1 2021. 


HRC prices are approaching $660-670/nt ($727-738/mt) fob US mill for spot orders representing about a $20-30/nt increase since the start of October. Strong utilization at mills to fulfill November and December deliveries may, in turn, buoy scrap prices. The latest utilization rate of 69.4pc for the week ended Oct 17 is continuing to climb compared to 66.6pc recorded for the week ended Oct 3. 


CRC prices have firmed up and are now about $820-860/nt ($904-948/mt) fob mills, up $20-40/nt against early-October pricing. US mills have made several tube and plate increases in October as well. The tight supply and strong demand for finished steel are also evident in the EU and CIS markets.


Material overhang to affect trade

Reports indicate an overhang of some material left in the market following October trade, especially, shredded scrap, where buyers were unwilling to maintain September prices at sideways levels. Scrap flow has remained moderate for most, while it has increased over the past couple of months at some yards.


A few market participants report experiencing an excess of tonnage and some indicate that several mills still have outstanding tonnage on prior orders. Conversely, some scrap yards report slow feedstock flows and difficulty in locating and attracting good quality scrap. Dealers also note the expectations of continued problems with truck and rail transportation and shortness of manpower for scrap processing despite the higher unemployment rate since COVID-19. 


Export flow expectations, tight mill inventories, the approaching winter season, shorter weeks for feedstock receiving, and processing are some other factors that could affect trade over the next two months. November and December also have shorter scrap days for processing and delivery due to holidays and personnel vacations days while mills are expected to continue improving utilization rates during those months. 


Several scrap dealers noted some uncertainty from the US presidential elections on Nov 4, which might influence the timeline to settle the market given the contentious rhetoric on the winner and potential protests regardless of who wins the election.


Assessing exports

Export demand has vacillated with higher scrap prices as buyers seek to gauge their ability to maintain profitability given the weak domestic markets and risks in exports should finished steel suddenly begin to move to competing markets. 


In the week of October 12, Asian markets returned from the Golden Week holiday with renewed interest, and multiple scrap deals were finalized by Turkish mills. While Turkish scrap import prices weakened, the few US-sourced deals along with demand from Asian buyers in containers and bulk are expected to support dock prices. 


Mexico will also add to the demand for scrap. Mexican mills have been encountering higher domestic scrap prices and are heard to be seeking scrap volumes actively throughout the southern United States. Of note, several Mexican mills were heard pricing higher volumes in the East Coast.

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