Quarterly Report – September/October 2019

Market conditions for US scrap metal processors have become increasingly difficult as the year has progressed. Among the major metals, nickel has been the anomaly as its LME three-month price surged above US$ 18,000 per tonne in early September. But as with other commodity prices, scrap dealers have not captured all the gains in primary metal prices. In the Eastern US, published prices for 304 solids and clips have recently advanced to more than US$ 1275 per gross ton delivered to the mill, but the recent gains in stainless scrap prices are nowhere near those of primary nickel prices.

As with other markets, concerns about slowing manufacturing output and the impacts of the US-China trade war continue to weigh on market sentiment in the USA. The American Iron and Steel Institute reports that the US steel mill capacity utilization rate fell to 78.8% in early September after having stayed above 80% for most of the year. Also, the Institute for Supply Management reports the US manufacturing Purchasing Managers Index (PMI) fell to 49.1 in August as sentiment slid into negative territory and hit its lowest level in 2019. According to the manufacturing PMI report, “respondents expressed slightly more concern about US-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders”.

The global slowdown in trade flows has also been reflected in overseas shipments of scrap. According to the Census Bureau, US stainless steel scrap exports during the first half of 2019 declined 30% from the same period last year to 230,521 tonnes. Weaker demand for US stainless scrap from China (-98%), Canada (-74%), Pakistan (-79%), Vietnam (-53%), and South Korea (-42%) more than offset gains to Taiwan, India and Mexico, among others. The shifting stainless steel scrap trade flows between the USA, Canada and Mexico highlight the importance of the North American trade bloc for stainless market participants. According to the International Stainless Steel Forum, trade flows of stainless steel products within the NAFTA region reached 570,000 tonnes last year. As a result, stainless steel market participants should expect to benefit from the ratification of the new USMCA trade agreement.