Quarterly Report – September/October 2019

After a brief price rally in August, US scrap markets are once again under pressure from weak demand, falling new steel prices and a more than adequate supply of scrap.

After several months of declining US scrap prices leading into August, flows into dealer yards also declined. With a brief upturn in export prices by early August, scrap dealers were able to leverage export options against domestic demand and were successful in raising prices by US$ 10-20, but the rally was short-lived.

By early September, the slowing US and world economies were applying a drag to demand for steel, and new steel prices were falling. Scrap dealers, in turn, lost some of their leverage in the market. As the September market began to materialize after the Labor Day holiday, a reported lower-priced bulk sale to Turkey caused mills to reconsider and to seek further drops. In this they were successful as a trade that was initially predicted to be US$ 10-20 lower quickly dropped US$ 30-40. Some subsequent trades in certain regions were down even more.

The reality is that manufacturing is now potentially in a recession, not just in the USA but worldwide. International Purchasing Managers Indexes have been slowing for some time and are now in contraction in most major economies. In turn, demand for new steel is waning. Mills worldwide are competing for market share by lowering prices, in turn putting downward pressure on scrap prices. With current geopolitical tensions and the US/China trade war, market uncertainty is adding to the decline.

The good news is that US mills are addressing the issue by taking out production through scheduled shutdowns and outages. That is evident in a now declining capacity utilization rate below the 80% seen in the first half of this year. While that may help scrap prices in the long run, it will put additional downside pressure on US scrap prices in the short term. For now, scrap prices appear to be under pressure moving into October, as demand for new steel remains weak. That is reflected in now-dropping new steel prices in the USA. Hot rolled coil prices are again under pressure, as well as those for other grades like plate that had previously shown some staying power. Rebar has also seen recent price drops on weaker demand and lower imported prices. That trend looks set to continue as the spread to imported material is now very wide. Although US steel consumers are hesitant to order from overseas owing to the time lag and potential market changes, the spread may now be too much to ignore as US mills in turn are reducing their prices. That can only be a negative for scrap prices in the short term.

The weakness is expected to last through the fourth quarter of 2019 owing to these ongoing issues, as well as seasonal demand factors at year-end. Scrap prices will remain under pressure until demand again overtakes supply, and dealers regain some support in the export market. That may not be too far off as scrap flows into dealer yards are lacklustre, as low prices have already slowed scrap intakes. Any further cuts will drive feedstock prices low enough to begin to mitigate peddler traffic, especially when adding in the reduced values of shredder by-products like Zorba. In addition, winter is not far off, and that will further constrain flows.

The current cycle appears to be one of lower new steel and scrap prices, on weak demand and a competitive marketplace. When demand improves, so should scrap prices.          

George Adams - George Adams (United States)

George Adams

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

United States
Quarterly Report – September/October 2019