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

Ferrous scrap trading in the US commenced on Wednesday, kickstarting pricing increases that are in line with the early-week bullish forecasts amid the strongest market the industry has witnessed in years. 


COVID-19 related lockdowns and resulting economic effects in 2020 shifted the usual seasonality patterns and scrap flows because of which, pent-up demand has been brewing since Q3 2020. The market took a brutal hit during the peak of the pandemic in H1 2020 but, the year completed with renewed optimism that has snowballed into the January trade cycle.


Some Detroit region mills entered the market before midday Wednesday, announcing price increases of $100/gt on #1 busheling and other prime grades and raising secondary grades such as #1 HMS and shredded by $90/gt above December settled prices. 


Detroit made an initial offer of $70/gt across all grades in December that met seller resistance and encountered increases in trading over the next four days depending on mill and grade. December increases in other regions ranged from $60/gt to $120/gt against November settled prices depending on mill and grade as well. The January price increase announcement meets the higher end of the range given the earlier price increase estimates of $60-120/gt. 


Trading could move quickly throughout the Midwest toward the South and East, at similar price levels or above, parallel to December trading where early deals tended to fall in the lower-priced range. 


However, the market is unclear on whether January will see a repeat of last month’s daily price rises, as a consensus on pricing already seems to exist as lower availability of volumes will limit the placement of tonnage. 


Prime grade prices could increase by $100-120/gt or an additional $20/gt above offer, over the next few days on limited inventories and strong demand depending on mill and region. Several sources are noting sufficient shredded inventories, which may limit the grade’s upward movement. 


In view of the prices trending for primes so far, #1 busheling will potentially settle at $430-520/gt with the higher end of the range expected in Cleveland and Houston, while the lower end is expected in Philadelphia and surrounding markets. 


Cut grades like P&S 5ft will feasibly rise to $400-470/gt, depending on region and starting price benchmarks as late trades in December saw prices move towards January levels. Mills were eager to secure scrap through the latter half of December and were reportedly locking in volumes at to-be-determined prices. 


Prices may soften by March

February ferrous trading may achieve price increases of $20-30/gt on January settled prices. Increased prices at the scales are seeing a rise in scrap flows to yards. Assuming a three-to-four-week processing time from entry of scrap into yards to mill availability, more scrap may be available by late February to early March. A price correction in the market is already projected to ensue by March in finished steel sales along with scrap prices, which may tamp down on the current frenzy by the end of Q1 2021. 


The daily Davis Index for Turkish imports of US-origin HMS 1&2 (80:20) declined by $3.35/mt on Wednesday to $477.90/mt cfr per latest transactions. Turkish mills have begun to soften offers in their domestic scrap market over the past two weeks. US offers to other markets continue firming up but foreign mill buyers are resisting higher offers and are buying only needed volumes. Adding to the mixed dynamics, though, Davis Index heard of a US-based deal today for HMS 1&2 (80:20) at $480/mt cfr, the deal is $7/mt higher than a previous deal from the same supplier on Dec 24.


Strong finished steel sales in India and Bangladesh are pointing to continued support for firmer prices on tight scrap globally. However, softer prices on domestic ingot and billet in India also point to end-buyer hesitation. The entry of Chinese mills for imported scrap, especially, from Japan may support US export prices in Q1 and into Q2 2021. 


Concern over the effect of the second and potentially third wave of COVID-19 and the resulting effects on world economies is adding to uncertainty in Q2 and Q3 2021. Overall, most market participants continue expressing a positive sentiment regarding steel demand and strong ferrous scrap prices through 2021.

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