US ferrous scrap markets saw one of their strongest recoveries in the three‐month period from November of last year through to January 2021 thanks to a combination of strong international demand, rising prices for new steel and healthy demand for scrap.
After some uncertainty in the US market leading up to November, it became apparent that domestic demand was outpacing scrap supplies. This demand was driven by low inventories and reduced production capacity that allowed for steadily rising prices of new steel. Add to that a steady increase in demand in the export market, and scrap dealers were able to capitalize on several months of scrap price increases.
Scrap dealers had sensed the potential rise in the market and had begun holding back scrap in December in anticipation of stronger prices in January. They were not disappointed. After a healthy increase in December averaging US$ 80 per ton, they saw a further US$ 70 increase on average in January. While all grades were in demand, prime scrap saw the largest increases and has since held its value as shred and cut grades corrected in February.
As the volume of scrap held back in December flowed into the market, scrap supplies were quickly replenished on the strength of high scrap prices and mild winter weather in the USA through January. Those factors, along with a slowing export market, allowed mills to recoup a third of the scrap price increases in February, taking back an average of US$ 50 per ton on shred and cut grades. Prime scrap, however, retained its value on high demand from sheet mills and limited availability as supply chain issues shut down US auto plants and inhibited availability in the international market.
Two main factors have been driving demand: firstly, the interruption of the supply chain last spring, the depletion of inventories and the reduced capacity to produce the raw materials to refill them; and secondly, the change in consumer behaviour that has created strong demand for products that are metals-intensive such as freezers, sales of which are up 50% in these times of a more stay-at-home culture. Another issue has been the shortage of computer chips that has shut down US auto plants, with chips diverted to meet gaming demand. In the end, the pandemic has been a key driver of demand and of the ability of steel mills to push up new steel prices on still-lengthy lead times.
Those lead times have kept hot rolled coil prices at record highs in the USA, driven by auto and appliance demand. In turn, this has supported higher steel prices in those sectors that are still depressed but slowly recovering, including energy and construction. In effect, the reset of the economy, driven by a pandemic that temporarily stopped that economy, is now the driver of demand and healthy steel prices in the USA and abroad.
While US scrap markets corrected in February, they did not drop as much as export prices. This bifurcation in the market showed the overall strength in the US market and the belief that forward demand will still be healthy, especially as Asia resumes activity after the Chinese New Year holidays that contributed recently to lower export prices; indications are that the market will show signs of recovery after this holiday period.
In the USA, a polar vortex is now slowing scrap flows, with temperatures in the north well below zero and snowstorms a frequent occurrence. With their demand still strong, US mills have concerns about scrap availability in March. Add in the fact that China is now actively seeking imported ferrous scrap (after the ban was lifted on January 1 this year), and scrap dealers are optimistic about the market in coming months.
While new steel prices in the USA will start to come down later in the year, driven by increased US mill capacity and rising imports of new steel, demand should continue to support a healthy US ferrous scrap market. Dealers may be positive about the market but have not forgotten that we are still in a pandemic. With the vaccination programme under way, there is economic optimism but the potential still exists for continued interruptions and anomalies.
SA Recycling (USA), Board Member of the BIR Ferrous Division