United States

In October last year, recycled steel dealers were eyeing the potential for a slight increase in prices. There were concerns in the market that slowing collections could impact future availability as intakes decelerated entering the end-of-year holiday season. Those expectations proved accurate as mills paid US$ 20 per gross ton more on average to secure tonnage ahead of the slower months of November and December. 

Entering November, steel mills had second thoughts as order books remained weak and the price of hot rolled coil (HRC) floundered well below US$ 700 per ton. Despite concerns of future tight recycled steel availability, mills started to claw back the October increase in November and December; half was taken back in November and the other half in December as mills cut both prices and inventories. Although mills generally reduce inventories in December for year-end accounting, they started that process early in November and took inventories to levels that some deemed too low. With uncertainty in the market, low inventory positions were preferred at the mills despite the risk of tight recycled steel availability starting in January. 

January proved that thought process to be incorrect as a polar vortex descended on almost all of the USA for most of January. Temperatures were below freezing in areas as far south as Florida and Texas, with a multitude of storms bringing high winds, frigid temperatures and a lot of snow. Flows were drastically reduced for most of the month, with recycled steel intakes in some areas down more than 40%. In some instances, yards were closed for multiple days.

At the same time, there was a slow but steady turn in the domestic HRC market. A small increase in new steel demand owing to the new year’s restocking was met by a substantially smaller supply of recycled steel. Mills had overdone their inventory reductions and now had to pay more to attract recycled steel. January proved to be the beginning of an overall US market recovery fuelled by a recycled steel supply deficit. This supply-driven market garnered dealers a US$ 20 increase in recycled steel prices in January, with hopes of more to come in February.

That optimism appears to have been well-founded as February trading gets under way. Mill attempts to buy recycled steel in January came up short for many consumers on a lack of availability. In many cases, recycled steel secured by mills did not get delivered as the material was either not available owing to the weather or could not get to the market for the same reason. In turn, HRC price increases started to take hold. Despite a still-weak export market, US new steel prices - and recycled steel values too - started to increase. The US recycled steel market began to decouple from the export market as domestic mills needed feedstock that was not readily available.

Amid this market shift, the USA was also engaged in seating a new President and administration with a definitive trade policy agenda. An immediate trade war was averted as initial 25% tariffs on Canada and Mexico - the USA’ s largest trading partners - were delayed for 30 days. While the consequences would be substantial for all countries, including the USA, there was little initial impact on steel and recycled steel.

While there is still uncertainty surrounding the future of tariffs and international trade, the US market for new steel continues to improve. Real sales of HRC have risen above the US$ 700 per ton level as shorter lead times appear to be giving some traction to the market. In turn, tight supply to meet those requirements is pushing up recycled steel prices in February. While deals have not been completed at the time of writing, indications are for recycled steel increases of US$ 30 to US$ 50.    

While dealers will relish the upside for now, there is still concern about the future of pricing and consumer demand. International markets remain weak, with China continuing to struggle and dumping cheap billet on the market. While a trade war has been averted at least for now, it is still not off the table. Any trade war would impact consumer demand, which is the necessary component to keep the market on an upward trajectory. For now, the rise appears to be a trend, and the trend is always your friend. Recycled steel dealers are optimistic that there is at least a 60- to 90-day cycle of strength in the market. That will ultimately be decided by consumers but, for now, we’ll savour the win.