Ferrous scrap prices in December could rise by as much as $20-40/gt compared with November settled prices on rising domestic mill demand and support from the strong exports market.
Market expectations range from price increases of $20-30/gt in the Midwest, though some predict a surge of $40/gt. Several market participants believe that prices will rise as much as $50-60/gt within the next 60 days. In fact, an industry source told Davis Index that December gains will likely be followed by increases in January too.
Rising finished steel prices, higher mill operating rates, healthy export demand, reduced mill and scrap stocks, and full order books until January are all contributing to the current market strength. However, some market participants are trying to gauge the limitations that financial controls at mills could have on the market. They believe that such controls could restrain inventory building buys and the cost of goods sold towards the end of the financial year for many publicly traded mills.
Several market participants noted that financial management has played a role in December trading over the past few years. The pandemic’s effect though has changed many planning factors at mills raising concerns that January buys may be more expensive and limited, thus motivating mill negotiations. December, however, has fewer working days with the holidays and many mills have historically planned maintenance during the month.
Finished steel trends
Steel order delivery lead times are approaching nine weeks and the growing spread between the hot-rolled coil (HRC) and prime grades such as #1 busheling, is widening, especially in some Midwest regions.
Detroit was one of the weakest markets during November trading and is positioned for larger December gains. #1 busheling traded at close to $290/gt delivered Detroit mill last week, while HRC deals were heard in the range of $650-$710/nt ($717-$783/mt) fob mill, up $10-15/mt compared to the previous week. Cold-rolled coil (CRC) is heard trading in the range of $860-$900/nt ($948-$992/mt) fob mill.
Scrap yards grappling tight inventory
Scrap yards report low inventory with further tightness projected as we approach the holidays and short delivery months. Mills are making frequent calls to scrap suppliers to ship on prior orders. A few mills with strong programs came up short in November as some sellers held back in anticipation of higher prices.
Shredder operations have noted a 20-30pc decline in November over October flows. Several yards have raised scale prices to improve inbound material in preparation for December orders. Due to the pandemic, scrapyard operators note that higher prices do not correlate to larger feedstocks as directly as in the pre-pandemic period. They believe that the recent scale price increases rose competition to procure larger volumes rather than increasing total flows. In fact, lower activity on the roads due to stay-at-home orders has translated to fewer accidents and therefore, cars to shred. Demolition projects are also subdued compared to previous years. Oilfield repairs and replacements are also down making scrap hard to find in regions that traditionally relied on that supply.
Shredder feed inflows are considered better than structural, heavy quality scrap. Demolition scrap has slowed, tightening P&S 5ft, while #1 busheling is highly sought after at present. Both grades saw the most gains in November.
Exports have soared since the beginning of November. Imported bulk scrap prices to Turkey have risen by nearly $35/mt since late October, while US-sourced scrap offers to the destination are being heard at $335-340/mt cfr for HMS 1&2 (80:20). US-sourced trades at that level would be $50-55/mt higher than early October and $30-35/mt higher against a Nov 10 deal.
The demand for containerized scrap is also rising on both coasts. HMS 1&2 (80:20) containers have increased by more than $60/mt since late October. Asian buyers are also actively seeking better grades at higher price spreads. In February, the pre-pandemic container prices for HMS 1&2 (80:20) and higher quality P&S 5ft or shredded scrap trended at almost the same level, but today the spread between them is trending at $20-30/gt on both coasts.
While many market participants are preparing for price gains, not everyone is convinced that prices will surge in the short term. Typically, trading moves quickly in December due to a short delivery window and some sources still see the possibility of a flatter market, especially local, truck-only shippers. A few market participants believe $10/gt monthly increases are a more realistic sum over the next two monthly trades.
In the US South and Southeast, market participants are reporting expected gains of $10-40/gt depending on grade, region, and mill needs. Several dealers in Houston and Dallas stated that the regional scrap market is already looking up $30/gt and that offer prices could begin higher in the December trading week if the momentum continues. Any softening in export, which few anticipate, could have prices increase by $20-30/gt in the region.
Looking out for downtrends
The market strength will roll into Q1 2021 but the possibility of further lockdowns in the wake of rising COVID-19 infections continues to loom as President-elect, Joe Biden is set to take the office on January 20, 2021.
Several states and the new administration have announced a preference for lockdowns and minimizing social gatherings to decrease the growing contagion. However, as production of an approved vaccine is within reach a pent-up economical surge may ensue in 2021.