Prime Scrap Price Drops Again in February, Bottom in Sight?

“Tepid demand is being offset by the lack of available obsolete grades setting up the February sideways market,” one dealer in the Northeast said.

The combination of bad winter weather and the $60/GT price drop in January have reduced scrap flows into dealers’ yards by 25-30%. Increases in export prices have drawn scrap offshore, reducing the availability of shred and cut grades to domestic mills, he said.

“Prime scrap – not affected by weather or export scrap prices – continues to overhang the market with excess supply. It seems this scenario will continue until flat roll order books increase or new capacity comes online,” he noted.

“On a superficial level, the February ferrous market appeared weak, but beneath the surface there were clear signs of ferrous scrap tightness that are setting the next few months up for price increases – potentially significant ones,” another East Coast scrap executive said.

Amid that tightness, dealers are looking to replenish low inventories after strong shipments at the end of the year. With export demand strengthening at the same time, March could see an increase in shredded scrap prices of $30/GT or more, he said.

“With the bottom of the hot rolled market probably in sight as global finished steel prices increase, demand for scrap from U.S. mills should increase from lower levels in January and February. Throw in the additional EAF production capacity that is coming this year, and February could prove to be a low point for scrap prices for some time,” commented the exec.

Variables that could limit the upside for scrap prices include a volatile Turkish lira; less stimulus than expected to revive the housing sector, and steel demand, in China; slower than anticipated startups of new U.S. steel mill capacity; and lingering semiconductor shortages that continue to drag down automotive production.

“But at some point in 2022, greater demand for U.S. scrap will truly come to fruition, and that will make it difficult to push scrap prices lower than the levels we have experienced so far this year,” said the exec. 

Pig Iron Market

The pig iron market is starting to improve despite the weakening of prime grades in the U.S., said one SMU source, who cited the recent sale for April shipment of southern Brazilian basic pig iron to the U.S. at $540-545/MT CFR. “Now the Brazilian producers want to raise their asking price. Likewise with Russian and Ukrainian offers,” he noted. “The U.S. mills are loath to pay more at this stage since they have domestic busheling on the run. Any future increases for U.S. sales will depend upon demand in Turkey and Italy, which has revived recently. China, which is at the tail end of New Years, could also be a factor but has shown little interest as yet.”        

By Tim Triplett, Tim@SteelMarketUpdate.com