The US ferrous scrap market began its February transactions in the Midwest early Thursday with prices dropping by $50/gt for secondary grades such as P&S 5ft or turnings, down $60/gt for shredded and unchanged pricing for #1 bundles along with other prime grades, all compared to January settled prices.
Primes are trading without difficulty across the US while transactions for secondary grades are facing some pushback. Most transactions are anticipated to proceed into Friday, from Detroit and surrounding Midwest regions, also moving South, East, and Southeast, with activity slated to linger into early next week.
In the South, the pricing trend is like the Midwest, but market participants inform that while prime grades are trading sideways, grades such as #1 HMS and P&S 5ft may trade closer to down $40/gt while shredded will be closer to down $50/gt compared to January settled prices. The active purchases of Mexican mills in the region along with strong capacity utilization at regional mills are attributed for the stronger pricing.
Material flows
In the past month, scrap flows and supply for secondary grades such as shredded have outpaced mill demand, although prime grades like #1 busheling remain strong and limited in supply. However, with prices dropping to these levels, the material flow will cut back noticeably. Although, some sellers acknowledge that spring weather and stronger economic activity in Q2 2021 should maintain flows at adequate levels without extreme scarcity. A big question is export demand in March and the second quarter if Chinese mills opt to increase imported scrap buys.
Inbound shredder feed will wane this month while automotive wreckers have reported holding back on scrap considering a sharp drop of $60/gt.
Sellers have cited the harsh weather conditions on the way, which cuts a short month down even further leaving fewer collection and shipping days. Low temperatures and conditions will also hinder equipment operations, especially shredders.
For a few, this combination of factors is leading to some loss of motivation to move ample secondary tonnage at new, lowered prices.
Mill activity
Mill order books remain strong with hot-rolled steel prices enduring above $1,000/nt fob mill. Lead times continue to stretch, beyond seven weeks and mill buying programs are generally near normal volumes. Still, demand is partially muted as larger buys due to January restocking have begun to decelerate.
Prices for prime grades have lingered near a 10-year high propelled by electric arc furnace (EAF) mills like Nucor, Big River, and Steel Dynamics that need material to boost existing and upcoming production that hold greater capacities.
The spread between shredded and #1 busheling will enlarge to about $80-95/gt in the Midwest, or more in the South, and based on the starting point from January. The prior peak gap between the grades touched around $70-80/gt in June 2020 and the historical spread averages closer to $30/gt. Considering the current trend, #1 busheling will remain between $480-520/gt in Midwestern regions while shredded will drop close to $400/gt.