Quarterly Report – July 2019

In June, there were few surprises in the US scrap market as weaker mill demand and a ready supply of scrap steel took its toll on scrap prices. Scrap dealers again took a hit as prices dropped in most regions by US$ 20-30 per gross ton. Position was again more important than price as a weak export market left plenty of scrap in the US market.

While US mill capacity utilisation rates are still good, a slow and steady decline saw them drop from a high of over 82% this year to just under 80% in July as mills cut back on production to bring inventories in line with slower summer demand. New steel prices in turn reflected the slowing summer economy as the price of hot rolled coil (HRC) continued to drop into the low US$ 500 range from a high last year of over US$ 900. Steel service centres were reluctant to order anything other than for immediate needs as they watched prices continue to fall and worked to move higher-priced inventory. US steel mills instituted two US$ 40 increases on HRC, with the result that prices now appear to have stabilised and are up slightly from their floor.

Other grades of new steel are not faring as well: both plate steel and special bar quality have continued dropping on weaker demand in the oil, gas and agricultural sectors. In turn, US economics have continued to slow, as reflected in two consecutive quarters of drops in industrial production. In addition, the current trade war with China has put pressure on a market that was already softer owing to weaker summer demand and a slowing world economy.

Weaker export prices in June were another factor in domestic mills being able to reduce scrap steel prices. Scrap flows into dealer yards have slowed significantly as a result of: price drops in May and June; the effects of the summer slowdown via shutdowns and vacations; and the heat of summer. Ongoing flooding on the central US river system has also mitigated scrap flows and availability, which has begun to tighten despite weaker overall mill demand. Shred feed is now in tight supply, and grades like steel turnings have actually seen price increases as availability is tight due to summer shutdowns.

Such factors have been influential in July as scrap appears to have found a floor on tighter availability and mills’ attempts to stabilise new steel prices through consecutive HRC price increases. Scrap exports have supported that position as prices to Turkey and Asia both saw incremental increases in late June and early July. That allowed dealers to hold scrap prices steady in July, other than a few early deals at US$ 10 lower. That drop was premature, and those dealers will probably see that money returned in August as HRC prices and export prices have both improved. That will be supported by lower scrap availability as intakes at dealer yards remain lethargic.

While overall worldwide economics remain weak, as reflected in continued lower month-over-month PMIs, the end of the summer should bring back some seasonal demand. With scrap now in tightening supply, it should support current market prices with the potential for upside as we move into the seasonally stronger months. While no-one is expecting a rapid rise in scrap prices, there definitely appears to be a floor with the potential for upside in August/September.    

George Adams - George Adams (United States)

George Adams

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

United States
Quarterly Report – July 2019