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United States

Spring is traditionally a time for restocking by US steel service centres as consumers tend to be active in that period. In normal times, that usually drives new steel prices upwards and takes recycled steel prices along with them. That was the case in 2023 when markets saw a strong rally, with rapidly rising prices of both new steel and recycled steel. Dealers waited again for that scenario to play out this year but were greatly disappointed as weak overall demand and falling new steel prices weighed on markets. In the end, recycled steel dealers saw three consecutive months of lower prices.

January, February and March all saw recycled steel prices lose ground as mills chased the price of new steel lower. The rally that was supposed to take prices higher never materialized as consumer demand continued to soften both in the USA and abroad. A mild winter also added to overall recycled steel supplies as dealer yards stayed active with warm, spring-like weather. The reality was that recycled steel intakes actually fell slightly in that timeframe; unfortunately for recycled steel dealers, so did mill demand. April saw the first signs of stability: prices that were poised to continue falling finally stabilized, with the majority of recycled steel pricing going sideways.

As steel service centres watched the price of new steel slowly fall, it kept them away from any restocking. While annual contracts kept mill activity steady, there was no real increase in new steel demand to steady or increase prices. Hot rolled coil (HRC) prices slowly dropped month over month until levels were in the US$ 800 range, with deals heard at below US$ 800 - a far cry from the US$ 1000 levels seen earlier. In turn, steel import prices remained even lower than domestic prices. That left no incentive for service centres to buy anything more than their immediate needs. Mills in turn took more downtime to manage inventories, further reducing overall recycled steel demand.

While the premise of potential interest rate cuts by the Fed was impetus for some enthusiasm for a future rally, the Fed saw no signs that inflation was waning; the glimmer of hope for rate cuts as early as summer faded. This left both mills and dealers with a feeling that market weakness would last longer than expected. That assumption has proved correct as both new steel and recycled steel prices have continued to falter.

Both Nucor and Cleveland Cliffs have instituted their own HRC indexes in the last month for the stated purpose of visibility in the market. The reality is that it appears to have temporarily created a race downwards as mills chase orders to keep their sales books filled.

While mills have accepted that new steel prices may remain weak through the summer months, they have also targeted recycled steel to recoup more margin. The problem is that there appears to be little left in recycled steel prices to give back as collections at current price levels have been reduced. Shredder feedstock has been difficult to acquire as cars are staying on the road longer and obsolete recycled steel collections continue to fall. That has positioned mills and recycled steel dealers at a standoff in May as the former try to take prices lower while dealers are well aware that their overheads and smaller collections do not

warrant the drop. Inflation has not just hit the consumer; it is a real factor in recycled steel yards’ operational costs and overheads. While new steel prices have fallen, mills still enjoy a healthier margin based on new steel to scrap price differentials when compared to dealer margins.

While again mills may be able to take some money from recycled steel dealers in May, they may find it’s October 2023 all over again, when lower prices slowed flows and forced mills to pay much higher prices by December on a lack of recycled steel supply owing to lower collections.

Last summer saw areas of the USA break records for protracted heatwaves. Not much recycled steel gets collected during those periods. While the economy is definitely slower, and demand weaker, it has not stopped. Mills will still need recycled steel to run and may find it hard to source in late summer owing to lower summer collections, as well as too much material leaving the USA for other markets.

While export has also been relatively weak, it is still active. Even weak markets sell new steel and need recycled steel for their furnaces. India has remained strong and other countries lack the infrastructure and recycled steel reservoir to meet their own needs. While their economies may be weak, they still need recycled steel for their mills, and most turn to the USA for that feedstock. Currently, there is good demand for export and prices are on a par with and, in some cases, overtaking US domestic prices. That will take even more recycled steel out of the US market in the months ahead.

In total, we are in an OK economy both in the USA and abroad. Weakness will continue and be exacerbated by the “summer doldrums” - a time of weaker demand as consumers concentrate on vacations rather than on remodelling or on buying cars and appliances. If we are truly back to normal seasonal times, this should last through the summer months, with demand ticking up again in the autumn when consumers return to the market for metal-intensive goods.

The question appears now to be whether there will be enough recycled steel available to meet that slight increase in demand. If not, we will probably see another recycled steel price increase to generate the needed melt feedstock. To date, there appears to be little recycled steel in reserve as dealers are also going hand to mouth on a monthly basis. While the market will probably be weak over the summer months, there will still be demand. Dealers should eventually benefit from a potential recycled steel supply deficit if current trends continue.