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

Early forecasts for the July ferrous scrap trade are pointing towards a sideways trend with some sentiment of downward pressure on prices. 


Prices will likely be led by region-based features, as in the past few months, with some markets and grades falling, while others may remain unchanged or possibly rise.


Bridging the demand supply gap

Though it is a little early to identify mill demand levels, some sellers expressed reluctance in selling material at down numbers in July, unless warranted by deficient demand. 


An improvement in finished steel demand and utilization rates of around 60-65pc, even though historically low, could help sustain scrap pricing. So far, mill demand has not been on par with the increase in scrap flows. Moreover, there are vast regional differences in both supply and demand.


Prices of grades that are in tight supply, such as primes, could increase in some upper regions but several in the South are forecasting prices for these grades to fall. Certain EAF mills in the Midwest, SDI and NorthStar for example, have low inventories suggesting the need for scrap. However, most mills have been carefully avoiding a buildup of excess inventory. Other Midwest mills continue with low to no buying programs, including NLMK, ArcelorMittal and US Steel.


Automotive restarts have been slow to gain traction, leaving supply of prime scrap at its lowest level this year. Yet, in some pockets, due to low demand, many sellers had difficulty placing their prime tons leaving them with an excess of that grade.


The spread between shredded and busheling is around $80/gt or more, which is historically wide and should seemingly push shredded prices upward, even in markets where prime remains sideways. However, market participants report an overhang in most obsolete scrap grades as flows have picked up by about 15pc above expectations but remain around 70pc when compared to a typical month. Shredded is referenced as the grade with highest downward risk.


Barge movements and shredded material destined for the river are confined in the Chicago area due to lock closures. However, this oversupply is somewhat balanced by the loss of about 40,000gt because of General Iron’ shutdown that started in mid-May.


In the Southeast and Texas, expectations of sideways to soft-sideways are also present. Scrap sellers range from sufficient incoming feed stock to extremely limited scrap inventories and slow flowing feed stocks. Pipe mills in Texas reported layoffs and temporary closures, which will dampen demand.


All eyes on mill restarts

Temporarily idled blast furnaces are restarting late June and into July. However, as these furnaces are not consumers of prime, they are unlikely to impact prices for that grade. Also, the new onset of mill production may hamper HRC price increases that mills are striving towards. The increased industrial scrap supplies will also put downward pressure on prime grades.


Other mill restarts such as US Steel’s Edgar Thomson No. 1 blast furnace in Pennsylvania and more recently, JSW restarting its EAF in Ohio will impact domestic markets with increased scrap buying in those regions. In the case of JSW, though, a significant demand in scrap is not expected for several months. This activity along with East coast pressure may help balance the supply versus demand curves in the Northeast.


Strong but inconsistent exports

Export activity has been strong, showing signs of price improvements, but has been inconsistent. Industry participants hope to see activity off the East coast and Gulf continue but are hesitant to presume increases will hold into July. On the West Coast, exporters inform Davis Index of mixed messages by Asian buyers regarding demand for the next few weeks due to continued weak demand on finished steel goods in domestic markets.

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