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

The domestic ferrous scrap industry is predicting July’s market will be down by $10-20/gt on primes, and sideways to down by $10/gt on cut grades as supply is overtaking demand. 


Official trading is not slated to begin until July 7 due to the approaching Independence Day holiday, with a few early transactions conceivable towards the end of this week.


The downward interval for July trading follows domestic scrap price growth in May and June markets that concluded with price increases of $30-40/gt with disparity based on region and grade. Some market participants are seeing meager flow into dealer or shredder yards, though overall scrap flow is sufficient in the US. Moreover, price predictions on obsolete grades adjusted up slightly compared to earlier June predictions.


After June trading concluded, some sellers believed they were letdown over the inability to place desired prime tonnage. However, many market participants have seen adequate demand in June as well as upcoming for July with no signs suggesting strong downward price moves.


On average, July prime scrap prices delivered US mill are expected to transact at around $300-305/gt for #1 busheling and about $245-250/gt for shredded, with variance based on local market, supply strength and mill buying programs.


Primes grades could drop further than obsolete grades as the automotive industry is slowly recovering and local DRI from Nucor is becoming more available. If this happens, the spread between prime and shredded material will reduce to $55-60/gt in July compared to the Davis Index price gap of $68/gt, between #1busheling and shredded, delivered Chicago. 


The gap between #1 busheling and shredded reached its highest levels in three years during the June 2020 ferrous trade. The last time it went over $65/gt was in Q3 2017 when the gap touched $70/gt. The current span is about double the average divergence of $35/gt during the June 2017 to June 2020 period, and the historic average spread of $30/gt. 


The gap between ferrous scrap prices in the US and crude oil prices has widened in recent months compared to the more similar parallel seen traditionally. These indicators suggest a future downward scrap price potential as it relates to recent, extensively lowered oil values.


Earlier outlooks proposed the downward inclination in the industry would level off and show some improvement by the second half of the year. Scrap flows, for prime and cut grades have been incrementally improving since states and industry have resumed activity after stoppages. 


Steel demand also reveals signs of improvement. However, it is still deficient in the recovery phase and not in line with scrap flow increase. Steel price escalation announcements have helped prevent further declines but as several mills are in the process of resuming output, overall steel demand will be consumed by the additional activity. 


The combination of factors may cause domestic finished steel price increases to remain stagnant until Q4 2020 as markets should hopefully align better by then.

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