Hoffman on scrap: The March outlook

This, in turn, could push Houston tons up river, adding more tons to the river market, further weakening that market. If the reduced buy was caused by a commercial disagreement, as one large supplier indicated, this could cause a longer-term production disruption. However, a mill source stated that the mill was simply making an inventory correction in February due to their oversized inventory in January. All eyes will be on the Rocky Mountain region in March. 

On a related note, one large Houston trader quickly pivoted in the second week of February and moved to sell a 45,000-ton cargo to Toscelik at $415 per metric ton (MT) CFR (80/20HMS) Turkey, while another large Houston exporter confirmed a sale to Mexico at $415, $450, and 4455/mt (HMS, PNS, and shredded, respectively).

Subsequent to the above sale at $415, Turkish producers have successfully pushed the bulk US export market down to $393.50 for HMS 85/15 (which translates to $390 for 80/20) and shredded at $410.50 CFR for  the latest US Cargo. The Turks point to lower finished steel demand and lower finished steel prices; the average price for rebar in Turkey stands at $610/mt (-$13 since Feb. 1) Ex works and hot-rolled coil (HRC) at $685/mt (-$20 since Feb. 1) Ex works.

“Longs sales are at a standstill,” said one producer, and the Turks are now targeting a price of $375-380 for bulk shipments, while exporters expectations are at the new $390 level. To add fuel to the fire, the Turks expect that the US scrap market will move down in March, and those Turkish mills that have inventory will wait to see how much the US market will move before coming back for more purchases.

To note: The drop from the highest sale in early February at $422 to $390 in this last sale looks like a drop of $32 on a CFR basis, but bulk freight rates have also dropped by $7, making it a $25 drop from Feb. 1 on an FOB basis for exporters. The latest news is that a short sea cargo from Bulgaria was made to IDC at $376 CFR for 80/20 HMS. Given the daily drops, look for more US bulk vessel sales into Turkey at $390 CFR (or lower) for HMS 80/20 after the US market comes out next week (March 4 to 8).

In the US Midwest, one mill said they had a small unplanned outage this month that should be repaired by the end of the week, but they projected that they would be back with a smaller buy. Two mills in the Midwest region expect prices to drop heavily on prime $40-50 and shredded and cuts off  by $20-30. This seems to be the consensus of the mills in the region.

Buyers in Asia are all also pushing to see how much they can reduce their prices. One bulk sale of 30,000 tons of HMS 80/20 was heard into Vietnam at $390 CFR, and a sale of containerized HMS was confirmed to be done at $360 into Taiwan. At this point, suppliers of containerized scrap on the US West Coast have capitulated to a lower price to Taiwan at $360. They are currently getting “numerous” offers from buyers at the $360 CFR level, which is a $20 drop from the market just two weeks ago.

Coming into March, the export market is down. With mill outages, a seasonal reduction of winter inventories, and increased spring scrap flows, it seems that US mills will be able to push the US domestic market down by a hefty amount.