The US ferrous scrap trade for January’s cycle is slated to begin this week as the industry makes its way back from holiday breaks.
Large price gains are anticipated and although some sources are unsure about where and when to begin, most are leaning towards Wednesday for the official kick-off. Any potential offers on Jan 5 are also expected to receive further pushes from sellers. Mills have been reaching out to scrap dealers for the past two weeks for volume placements with to be determined (TBD) pricing.
Prices swell in December
The potential price increase in January is expected in the range of $50-120/gt against December settled prices depending on grade or region. Price expectations have swollen incrementally throughout December starting from hikes of $20-50/gt to increases of $50-90/gt at present for cut grades such as shredded and #1 HMS.
Prime grades like #1 busheling hold stronger upward potential considering the lengthening spread between the grade and hot-rolled coil (HRC), which is at a minimum of $600/gt and higher depending on the region.
Primes may increase by $70-120/gt in January trading against December settled numbers, especially on higher deals that closed early in December trading prior to the mill frenzy that saw prices move into previously expected January levels. Mills agreed on increases as some sellers shut down sales on remaining volumes expecting to wait for higher January prices.
Some sellers continued retaining limited scrap even with the final additional price increases that saw shredded and #1 busheling break through $100-120/gt increases against November settled prices. As a result, flows have increased slightly but the trend could become more evident from February onwards due to the weather and holidays.
Some early pre-trade shredded deals heard last week were priced at about $100/gt above early December levels, in the Southern region. A Midwest mill paid similar increases for prompt material last the last week of December 2020.
Factors driving the price surge
Global scrap price surges, limited scrap supply, strong mill buying programs, finished steel pricing that has surpassed $1,000/nt ($1,102/mt) fob US mill for some HRC spot sales, along with capacity recovery, with utilization now up to 74.6pc, and restocking are driving the recent price explosions.
Predominantly, HRC deals have increased to $1,047-1,102/mt ($950-1,000/nt), up by $78-110/mt against mid-December HRC prices. HRC has increased by $595/mt against mid-August prices.
Rebar prices may also increase to catch up with the higher input price as well as limited volumes expected from Turkish imports due to the additional duties. Market participants expect some feedback from the Department of Commerce by March 15, 2021, on this issue and expect domestic mills to take the opportunity to firm up rebar prices. In mid-December, rebar was at $771-793/mt ($700-720/nt) fob Midwest mill, now prices are reported at $815-838/mt, up $44-45/mt.
Metallics imports have dramatically surged recently with basic pig iron imports rising by over $110/mt delivered New Orleans port, in the past month and just under $200/mt over the past two months.
Scrap exports from the US to Turkey have also shown remarkable upswings as the Davis Index for Turkish imports of US-origin HMS 1&2 (80:20) increased by $121.55/mt to $481.25/mt cfr Jan 4, 2021, against $359.70/mt cfr on December 1, 2020.
Robust demand ahead
Price momentum is anticipated to slow down by March as the weather improves, scrap flows increase and robust demand eases, though moderate increases are expected to carry into the early February trading period.
Ferrous scrap is expected to continue receiving support from domestic demand and the export market. Domestically, Steel Dynamics’ (SDI) Sinton, Texas flat EAF is expected to begin buying scrap more heavily in March for a summer 2021 start of its 3mn nt (2.7mn mt) EAF, though some sellers are already reporting about inquiries from SDI for January trading. The estimated 100,000/gt monthly buys may cause disruptions and change scrap buying flows with reach all the way to the Mississippi River. The site will also operate with scrap alternatives and imported scrap from Europe, Mexico, and other destinations. The site will increase operational capacity over the course of H2 2021.
US Steel recently started up its 1.6mn nt (1.5mn mt) Alabama EAF along with several micro-mills launched by Nucor and CMC from Arizona to Florida. The increase in scrap demand in the US market is thus expected to support prices through 2021.
Longer-term demand for scrap in the US could increase with Nucor’s expansion of the Gallatin mill and the addition of a plate mil in Brandenburg. Both the sites are in Kentucky. Arcelor Mittal is also building a mill in Calvert, Alabama, and North Star Bluescope is planning an expansion at its present Ohio facility.
In the export market, Chinese mills began making scrap inquiries in December 2020 and have been permitted to begin importing ferrous scrap as of January 1, 2021. The competition for seaborne bulk scrap from large importers such as the US and EU in a period of domestic shifts or increases of EAF mill capacity supports a strong demand environment for scrap.
Asian mills could continue their strong demand with increased mill production, stimulus investments, and usual seasonality in the spring period. Emerging economies also will continue with infrastructure projects that will support steel consumption and regional economic growth to the overall economies.
Scrap inflow tightness may ease in spring on higher scale prices and improved weather. Depending on the economic outlook and the influence of COVID-19 and stimulus investments, additional demolition projects, oil rig repairs, and higher industrial production could add to the scrap feedstock into the summer to ease the demand pressure.