Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Market expectations for August ferrous scrap trade range from sideways to a price decline of $5-30/gt depending on grade and region. 


Construction material such as rebar, which faced a lagged effect with COVID-19 is now confronting softer orders as municipalities and states cancel or defer projects, according to fabricators. The decline in orders could reflect in lower capacity utilization at mills as well as lower scrap buys in August.


Impacts on August prices

Market participants expect further compression on prime grades due to overcapacity on the finished side and pressure on hot-rolled prices because of weak demand. 


Moreover, the spread between busheling and shredded widened in May and June due to industrial shutdowns, but a downward correction of $40/gt was encountered in the Midwest and Southeast in July, with prices declining by $20-30/gt in Texas during the same period as supply outpaced demand. 


The market now expects another $20-30/gt price erosion on primes in the August trading week due to weak demand, higher availability, and wider spreads. 


Regional variations will continue in August with cuts and fragment grades in the Midwest likely to trade down $5-10/gt with stronger sideways expectations in Southeast and South, compared to July settled prices. Davis Index has been informed of placements in the lower Midwest that are already following a $10/gt downtrend. 


Some scrap sellers are reporting an estimated 10pc decrease in scrap inflows in July compared to June, while others are seeing near-empty yards with few demolition prospects to boost inventories. Yet, several dealers reported a balance between supply and demand for August though they warned that prices are getting close to the threshold where scrap may not be profitable for some, which could lead to resistance at further lower trends.


The exports effect

Exports volumes and pricing ticked up in the US following Turkey’s latest ex-Baltic deal, which increased by $3-3.5/mt from last week to $265/mt cfr on HMS 1&2 (80:20). Pakistan and other Asian destinations have continued purchasing ferrous scrap, which is firming up prices but still not high enough to draw non-traditional exporters and shifting supplies to export outlets.


Future trends

September ferrous scrap prices are expected to be buoyed by tighter scrap supplies, slightly higher demand, and higher HRC prices. 


In fact, HRC prices have struggled to meet the $500/nt ($551/mt) fob mill prices targeted with the May sheet price increase announcements and are transacting at $440-480/nt ($485-529/mt) fob mill. US Steel announced on July 21 that it is raising sheet prices by $40/nt ($44/mt) to shore up pricing as demand is expected to recover in late August and September. Nucor, SDI, and other sheet manufacturers are expected to follow. Should demand not recover as expected in the quarter, EAFs and BOFs may need to reduce existing operating capacity as well as delay prospective furnace restarts or new capacity until 2021 once the recovery is on a more firm footing.

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