The third quarter ended with little fanfare. After a lacklustre second quarter typified by the summer slowdown, the ensuing three-month period began with the same low levels of enthusiasm.
The best news of late has been the US government narrowly avoiding a shutdown, which came on the heels of week number three of the United Auto Workers (UAW) strike against the three major US auto manufacturers. Those dynamics were set to be negative impacts on recycled steel/steel markets that were already in the doldrums.
The good news is that, to date, the UAW strike has had minimal impact on the price of new steel and/or recycled steel demand. Both were low to begin with and have remained that way going into October trade. While early sentiment had predicted a further fall-out in hot rolled coil (HRC) prices, that was not to be the case; in fact, HRC prices appear to have bottomed and have even seen a slight uptick, surpassing US$ 700 per ton on a price increase by one major US steel mill.
The bigger impact was the lack of orders prior to the strike that has further reduced inventories at all levels. Steel service centres were reluctant to buy in a market that potentially saw further downside on reduced demand, and the UAW strike should have further tempered demand and lowered prices. Steel mills responded to the slowing demand by scheduling outages which, in turn, have also minimized inventories and effectively pushed out lead times for HRC.
Fortunately for recycled steel dealers, that appears to be a net positive as collections were also on the decline in the second quarter, keeping a balance between reduced demand for new steel and the available supply of recycled steel for melting. The net effect was a relatively stable recycled steel market over the summer months, with little in the way of price changes except for one last downside correction on Busheling which went down on average US$ 30-50 per gross ton in September. That was the final note in a market correction that had been in play since the spring when the price of Busheling was well in excess of US$ 150 per gross ton over Shred. That dynamic was not sustainable and has now corrected itself. Unfortunately, that correction may have gone too far to where Busheling is now equal to Shred in some markets and could fall lower in October. This is also unsustainable as Busheling has both a higher yield and better chemistry.
The October recycled steel market is currently developing around a large number of mill outages. That has emboldened some mills to believe they can take additional money from recycled steel dealers. The question is what that will cost steel mills in the future, after the UAW strike ends. Inventories remain low at all levels and, despite economic headwinds in the USA and abroad, recycled steel will be needed in the near future as more electric arc furnace (EAF) mills come on line and the demand for Green Steel increases. With current low inventories, will there be enough available recycled steel as the USA moves into winter and the slower fourth quarter holiday season when collections are more limited? This summer was the hottest in US history and dramatically slowed recycled steel intakes; a harsh winter in the USA (and internationally) may have the same effect.
Export has also been supportive of US recycled steel dealers as Turkish bulk demand and price levels have held steady, supporting recycled steel prices on the US East Coast. The same has been true in the Asian market as post-summer restocking, although minimal, has held export prices steady on the US West Coast. Indian demand has also been a bright spot for US exporters, with prices surpassing domestic levels. Also importantly, US recycled steel exports have been in steady decline over the last few years as more domestic EAF demand comes on line. The demand for environmentally-friendlier EAF steel made from recycled steel continues to increase its share over integrated production.
Recycled steel should continue to increase in popularity as the demand for Green Steel grows worldwide. Green Steel production will continue to boost demand for recycled steel, as evident in the growing number of EAF furnaces coming on line in the USA and abroad. While the US and world economies will continue to face headwinds in the short term, including high interest rates and slowing demand, the demand for recycled steel should continue to grow and be supportive of the US recycled steel industry.