Scrap Prices Poised to Jump in March; Pig Iron a Casualty of War?

Stronger demand for U.S. scrap overseas is adding to the upward pressure on prices, sources said. “Export demand in Turkey and Asia has improved over the course of February, with shred prices CFR Turkey now at least $35/GT higher today than at the end of January,” said one dealer. “I don’t know if they will go higher from here, but the U.S. shredded scrap price is at a discount to Turkey currently. When that has happened at various times over the past year, the U.S. market has moved higher to catch up.”

The main headwind for scrap remains tepid U.S. demand as finished steel prices try to find a bottom. “The bottom seems close. Once we get some steel buyers back in the market in the coming weeks and months, demand for U.S. scrap can be expected to improve and support scrap prices – at least until spring flows help to bring scrap supply back into balance with demand,” said one dealer.

Despite the fact that sheet prices are falling, long product prices are holding near record high levels, which is also helping to support scrap demand, especially for obsolete grades, noted CRU Senior Analyst Ryan McKinley.

The $60/GT drop in January, the surprisingly resilient export market and bad winter weather have combined to significantly reduce inbound scrap to domestic dealers and mills. The severe lack of flow has put many dealers behind on February contracts, which will need to be completed before receiving new March contracts. Mills are reporting much lower than expected February deliveries and many are actively seeking additional tons at a March TBD price. Regional shredders have already raised scale prices by $30-50/GT in effort to source more scrap, reported another dealer in the northern U.S.

“Expectations for March ferrous scrap prices are up $40-60/GT for obsoletes and up $20-30/GT for primes,” he added. “Expectations beyond March are cautiously bullish, buoyed by stronger order books at the mills and new capacity coming online in spring/summer.”

Pig Iron Market

The ongoing situation in eastern Europe is likely to help prop up prime grade prices in March and beyond as well, depending on how things play out, said CRU’s McKinley. “Both Ukraine and Russia are substantial pig iron exporters to the U.S. and Europe, so potential supply disruptions are causing buyers to look elsewhere for material. Following Russia’s invasion of Ukraine, the risk of substantial global pig iron shortages has risen greatly. We may see a massive deficit in global pig iron supply—meaning that mills that rely on it will need to use more prime grade scrap or other ore-based metallics.

McKinley added, “It is also important to note that both sit towards the bottom end of the steelmaking cost curve, meaning that disruptions would also likely cause a spike in global steel prices that would no doubt result in higher steel prices in the U.S.”

The pig iron situation is still developing, but it’s not going to be beneficial for U.S. buyers, added another source. “The last cargo from Russia was priced at $610/MT CFR and scheduled for March/April shipment. Is that cargo going to ship at all? We don’t know for sure yet. But the bookies would give odds against it.”

U.S. mills that depend on pig iron have increased their dependence on material from Russia and Ukraine over the last 10 years as low-phosphorus producers were brought down to just two in Northern Brazil. In an effort to obtain lower phos material, the percentage of imports from Russia and the CIS rose to well over 60%, he noted. “If this gets cut off for whatever reason, I don’t see how U.S. users can replace those tons. Yes, they could go back to higher phos South Brazilian or Indian material. But the quality of their HRC may suffer and they would have to compete with the Chinese and the EEC countries as well as Turkey. Needless to say, the price will be stratospheric.”  

By Tim Triplett, Tim@SteelMarketUpdate.com