United States
Expectations in May were that the US ferrous scrap market was headed for lower pricing. That certainly proved to be the case. Scrap values weakened on lower export prices, declining new steel prices and lower raw material input costs like for pig iron. Ferrous scrap prices dropped by US$ 75 per ton on all grades during the month.
While that was a steep drop, US scrap dealers expected the hammer to drop again in June after watching a continuation of the precipitous fall in hot roll coil (HRC) prices, drastically reduced pig iron prices and ever-falling ferrous scrap export prices on both coasts. That set mill buyers on a mission to recoup additional margin on the assumption of an adequate supply of US ferrous scrap, and a weaker export market. They were quickly successful as dealers agreed to a US$ 50 decrease on Shred and Cut grades, and another drop of US$ 75 on Prime. Sheet mills drove the downside on the back of ever-decreasing HRC prices and slowly weakening new steel orders. That was easily accomplished as pig iron prices also dropped significantly as supplies became more readily available and mills adjusted melt programmes. The fact was that Busheling still maintained a significant premium to Shred, even with the US$ 25 reduction in that spread in June.
Mills are continuing to look closely at blend mixes and cost as their new steel sales margins have continued to shrink. However, margins are not the only thing shrinking this summer as ferrous scrap dealers are seeing a slow and steady decline in flows as prices have been forced down and summer slowdowns have taken hold. Scrap flows traditionally slow in the hotter months as more people turn their priorities to summer activities and vacations. In addition, high gas/diesel prices are outstripping peddlers’ reduced scrap revenues. Shredder ferrous buying prices have been forced down to levels where many peddlers can no longer make a living based on their higher cost structure. That in turn has also slowed inflows of Shred feedstock at dealer yards.
The summer slowdown in scrap flows had some scrap dealers believing that a price floor was in sight. They were partially correct as the downside in scrap prices in July was not as bad as initially indicated. Shred and Cut grades were expected to drop by as much as US$ 50 but the downside was limited to US$ 30 on slower scrap flows and tightening availability, especially for Shred. In addition, the export market in Turkey saw a significant but brief rally that supported a limit to the downside of US ferrous scrap prices.
Prime was a different story, however, as most dealers had expected a triple-digit drop and proved to be correct as Busheling tumbled US$ 150 on much lower pig iron prices and the continuing fall in HRC prices. The price of HRC today is back under US$ 900 per ton and pig iron offers are now under US$ 500. That brought the spread between Shred and Busheling closer to historical levels. Traditionally, that spread was closer to a US$ 20 to US$ 30 per ton premium for Busheling over Shred. When pig iron spiked after the start of the Ukraine conflict, there was an increase to a US$ 160 premium for Busheling - an unsustainable level. Today we are back closer to normal with a US$ 40 premium.
The US Federal Reserve has raised, and will continue to raise, interest rates to fight inflation and to slow excess growth. Mill orders are now seeing that effect. Sheet mill orders are experiencing weakness on those economic headwinds, exacerbated by the slower summer months. Even a smaller availability of US ferrous scrap in August may not be enough to provide support to an already weaker new steel market. While ferrous scrap may be shrinking and in limited supply, a still-weak export market and US weakness may at best provide US ferrous scrap with a floor on pricing that was expected in both June and July but did not materialize. The question for August is which will be weaker, supply or demand? That will set the parameters of US ferrous scrap pricing in August and beyond.

George Adams
SA Recycling (USA), Board Member of the BIR Ferrous Division
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