ISRI 2024: Experts see 'new normal' for steel, scrap amid riskier world

The bad news: That “new normal” could be tested. Because it’s not just domestic sheet prices that have been volatile. Geopolitics are too.

That was the rough consensus of a panel of steel experts speaking on the “Spotlight on Ferrous” panel at the 2024 ISRI Convention and Expo in Las Vegas on Tuesday, April 16.

HRC-bush spreads, and the benefits of consolidation

One pattern that has emerged over roughly the last two years: a more predictable floor for the spread between hot-rolled (HR) coil and busheling scrap. That’s according to Blake Hurtik, editorial manager for Argus Media.

Before the pandemic, spreads between HR and bush were typically in the $300s per short ton (st). Now, they rarely go below $400/st. When they hit that $400/st mark, either HR prices go up or scrap prices fall. “That might be our new resistance level,” he said.

Another big change has been the consolidation of the US steel industry. That, combined with Section 232 tariffs, has resulted in sharply higher profits for domestic mills. “It wasn’t all that long ago that it wasn’t unusual for a steelmaker to post an annual loss,” Hurtik noted.

Decarbonization: US in the lead

That profitability has allowed mills to invest in new, more efficient capacity. It has also allowed them to spend more in efforts to decarbonize, said John Ball, president of CRU North America.

The US steel industry already sports among the lowest CO2 emissions in the world. The goal is to go even lower by coupling EAF steelmaking, which accounts for the bulk of domestic steel production, with renewables.

“That’s the secret sauce. That’s the target. That’s the ambition,” Ball said. It explains why steelmakers such as Charlotte, N.C.-based Nucor are exploring advanced nuclear power – namely, small modular reactors, or SMRs.

Government money is also available to help mills decarbonize. Cleveland-Cliffs, for example, has been granted up to $500 million by the Department of Energy to replace the blast furnace at its Middletown Works in Ohio with two electric melting furnaces (EMFs).

“These incentives are typically starting at the top. They haven’t trickled as far down as those of you in this room would like to see. But I think this is where the opportunity is,” Ball told the assembled audience.

In other words, Uncle Sam should be there to help recyclers, too – whether that be through the Inflation Reduction Act (IRA), government departments, or other initiatives.

“The US government is pushing money onto the table and simply asking for some to come and take it to drive improvements in circularity and emissions reduction,” Ball said. “Take advantage of it.”

Countries such as China, India, and Russia, in contrast, are more reliant on coal and on blast furnaces. It will be more challenging for them to reduce to reduce emissions, he noted.

Re-militarization and the risk to supply chains

Prices might be finding a new normal. And the world might agree that C02 emissions should go lower. But risks to supply chains are increasing – as evidenced by the danger of transiting the Red Sea to the Suez Canal.

Ball noted the “strike group” headed by the USS Dwight Eisenhower aircraft carrier departed Norfolk, Va., six months ago in response to those tensions.

Such a long, forward deployment is unusual outside of wartime. And strike group has been shot at repeatedly by drones, missiles, and other arms. In fact, it has been shot at more than any other US Navy battlegroup since World War II, Ball said.

“We’re very concerned about what that means to global trade,” he added.

Turkey: Squeezed by cheap imports, inflation, and war

Tensions in the Middle East are already having a big impact on Turkey, the biggest destination for US scrap exports, said Amy Hinton, North American scrap editor at Fastmarkets.

Inflation in Turkey, which peaked at 70%, has cut into government spending on infrastructure and into consumer spending. That had already reduced domestic scrap demand in Turkey. “And we’re seeing nothing new, unfortunately, in terms of poor steel sector performance in that region,” Hinton said.

Turkey is also contending with cheap imports from Asia. That’s not only when it comes to finished steel. Traders are also bringing in cheap billet. And that billet can be converted into rebar for as little as $50 per metric ton (mt). That’s far less than the $200/mt it might cost to convert scrap into finished steel, she said.

As if that weren’t enough, the conflict between Israel and Hamas has hammered Turkish exports. Israel’s construction market typically accounts for a significant amount of Turkey’s rebar exports. But Turkey announced on April 9, with immediate effect, that it would stop exports of more than 50 products to Israel – including rebar and wire rod.

Exports to Israel had already slowed dramatically after the war erupted in October. It remains to be seen if the halt was a mostly “optical effort” by the Turkish government to “shore up some popularity.” It’s possible that the Turkish ban on steel exports to Israel will not be strictly enforced and that means to circumvent it will be found, Hinton said.