While US scrap dealers were disappointed by the substantial downward market correction in January and a lacklustre February, the resulting reduced scrap flows from lower prices and an unusually harsh winter paid dividends for scrap dealers in March. As the waves of the Omicron variant started to wane in late February, consumers returned to the market and thus helped to increase the demand that had been missing in the usually busy January period. That delay in expected orders was a driving factor in the weak January market but also the beginning of a ferrous scrap shortage that drove prices to record highs in March.
US ferrous scrap prices dropped by an average of US$ 60 in January and were flat to slightly higher in February. By March, scrap flows had decreased substantially at the same time as US demand started to return. In addition, a stronger export market drove up prices in both Turkey and Asia in February and March. Lower scrap supply caused by harsh winter weather, coupled with a by then booming ferrous scrap export market, set the stage for a triple-digit price rally in March.
The decisive factor, however, was the outbreak of the Ukraine conflict which interrupted the supply of Black Sea pig iron, and the subsequent sanctions on Russian steel and billet. Black Sea pig iron accounts for over 60% of US consumption - a necessary ingredient for many US steel mills. Therefore, this sent shock waves through the market as mills scrambled to replace the loss of Ukrainian and Russian pig iron.
Ferrous scrap markets responded quickly with record price increases in March. Shred and cut grades jumped on average by US$ 125 per ton. Prime scrap, a major alternative to pig iron for the mills, was virtually a name-your-price option for dealers who saw sales prices jump by US$ 175 to over US$ 200 per ton in some cases. While US mills paid a handsome premium to meet their immediate needs, they also worked diligently on melt recipe adjustments and scrap alternatives to keep production uninterrupted. Most were successful in that endeavour and the run-up in scrap prices started to stall in April. Shred was sideways in that month and cut grades dropped as some mills reduced their usage of Heavy Melt to increase efficiencies. Prime, however, remained in favour with healthy demand driving up prices by another US$ 75 per ton.
Mills and markets adjust quickly. The steep rise in prices brought a record quantity of ferrous scrap to the market in April. Scrap dealers quickly recognized that all good things eventually come to an end; in the ferrous scrap market, that period is usually no longer than three months. With a potential correction on the horizon, scrap flowed heavily into a market that was already showing signs of weakness internationally.
The Ukraine conflict and subsequent sanctions on Russia had ripple effects on international demand as energy prices soared. High inflation started to impact demand as rapid price increases in both commodities and goods foreshadowed rising interest rates in most major economies. The pandemic also continued to pressurize markets as surges in China caused major industry and port shutdowns, further taxing the international supply chain. In all, these headwinds have brought a ferrous scrap market now in correction mode.
The US ferrous scrap market settled quickly for May, with dealers and mills agreeing that a drop of US$ 75 was palatable at a time of multiple headwinds. HMS and turnings were again the weakest links, with the latter down as much as US$ 100 if they could be sold at all.
Export prices have not been supportive in the last month, as both Turkey and the Asian markets have seen steady declines on the same weaker economic fundamentals. With those markets currently down by US$ 80 to 100, there was little option for domestic scrap dealers but to accept lower US domestic prices for scrap in May. Scrap supplies are more than adequate to meet current demand as steel mills are once again in the pricing driver’s seat. All recognize that a price correction was inevitable.
On a positive note, business remains good. However, it is expected to slow as we move into the traditionally quieter summer months and face ongoing economic headwinds. Ferrous scrap intakes will also slow with now-lower prices and the hotter summer months around the corner. That decrease in scrap flows should eventually curb any supply excess and put a new floor on prices. While prices will be lower, they will still be above historical averages.
Both scrap dealers and steel mills should continue to enjoy another good year - a year that is more than likely to remain volatile.