Quarterly Report – April/May 2019

At the time of our previous Mirror in February, dealers were anticipating a stronger scrap market based on weak flows and improved export pricing. They were not disappointed. In March, the tightness in scrap availability pushed US ferrous scrap prices higher by an average of US$ 20 per gross ton. That was a welcome relief to dealers after taking an unexpected drop of greater proportions in January when ferrous scrap prices declined by US$ 30-40 per gross ton.

Unfortunately, the increase in March was short-lived and not a trend. After steel mills failed to secure higher prices on new steel, even after implementing two US$ 40 price increases on hot rolled coil, and scrap flows continued to improve with the milder weather, US steel mills quickly took back the March increases, with ferrous scrap price drops of US$ 20 per gross ton and more in April.

That scenario does now appear to be a trend. Scrap flows have improved steadily with warmer and drier spring weather. Despite flooding in the central US river system, scrap has found its way to dealers and mills who are now sitting on good inventories. Steel mills in turn have seen some erosion in new steel prices as order books begin to soften moving into the slower summer months.

Auto demand has weakened year over year. Steel service centres are sitting on good inventories and are reluctant to order additional tonnage as they also see a softening market. While overall US economics remain healthy, it is hard not to recognise a general slowing in the economy and slower seasonal ordering. Steel mill operating rates remain healthy at approximately 82%; however, the increase in domestic ferrous scrap demand over the last year has also met with lower scrap exports amid a weaker world economy, exacerbated by the effects of the US government’s 232 and 301 tariffs. Ferrous scrap exports are down year over year, making for a still well-supplied US ferrous scrap market.

With supply currently exceeding demand, scrap prices are again expected to drop in May despite some current firming of export prices in both Turkey and the Asian market. Even with that support, it will not be enough to stop mills from giving scrap dealers another haircut in May. While the drop should be small, we are entering the traditionally weaker summer months when prices tend to be weaker. Summer also tends to slow scrap flows, and the anticipation is that supply and demand should remain in balance for now. Export will be an important factor moving forward; however, world demand is not expected to increase over the slower summer months. That should hold ferrous scrap pricing relatively stable in the USA at the start of the summer.