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

The sentiment for ferrous scrap trading in the US next month has gone from a $10-20/gt increase last week to pulling sideways as of May 15.


The confluence of elevated unemployment, depressed income, lower consumer confidence, lower construction activity, and lower manufacturing indexes is expected to hinder consumer spending in the short-term and influence mill buying plans. 


During May trading, there were price increases, depending on region, of $30-40/gt for prime and $20-30/gt for secondary grades, with approximately 10-20pc of deals occurring at $40-50/gt price increases for prime and $30-40/gt for secondary. Demand was contingent on mills; some had the appetite to purchase, while others didn’t and offered sideways pricing on limited buys because of May outages. In some regions, remote springboard involved substantially higher prices.


Over the past week, market participants had informed Davis Index that early June scrap trading week could involve prices rising by $10-20/gt across all grades, however, the expectation has shifted to strong sideways pricing because of subdued mill demand and sufficient supply. Several scrap dealers noted there’s persistently low feedstock coming into their yards, but the majority acknowledged that improved weather conditions through this month have increased collection rates. Much of the same is expected in June, especially as peddlers and industrial accounts assess feedstock prices against their cash flow needs.


As May scrap trading closed in the US, Turkish mills returned to the market with higher-priced imported scrap deals, while concrete restart dates for the automotive industry were announced, fueling optimism for June. The recent flat rolled steel price increases also supported the higher price expectation.


While some scrap sellers are steadfast about rising prices, more market participants now believe it will be sideways. There are some concerns, both from mills and large scrap dealers alike, that better weather could lead to supply outpacing demand, resulting in a flat June pricing, or even a possible decrease. In the South and Southeast, sellers noted that scrap prices could decline $10-15/gt from May’s settled prices because scrap demand from regional mills may be lower than the increased supply.


Increased pig iron volumes unloading at main ports— and even being transported up river to the Midwest—are expected to dampen scrap pricing during negotiations next month. Nucor’s DRI mill restarted operations after a short shutdown and is heard to be aggressively offering material on sufficient inventories.


The deals that achieved the highest price increases in May are expected to trade sideways. Depending on the mill, as well as regional scrap inventories, the potential for $5-10/gt gain is a possibility. Many sellers have stated they aren’t holding tons for June because the market is unpredictable and they sold available material during this month’s cycle. 


US economy


The Federal Reserve’s industrial production index declined by 11.2pc in April ,the largest monthly fall in its 101-year history.

Ferrous scrap, oil, and steel prices are projected to bottom out during the second quarter, just as COVID-19 restrictions have begun easing.


The automotive sector plunged more than 70pc, while overall manufacturing output declined by 13.8pc in April from the previous month, and is 18pc below April 2019.


Oil and gas well drilling declined by 28pc, its largest drop on record dating back to 1972, as demand for energy collapsed. Primary metal product, aerospace transportation equipment, furniture and related products, all decreased about 20pc.


ISM’s manufacturing survey revealed that US manufacturing and services firms expect revenues to decline sharply this year because of the lockdowns, pushing any recovery back to 2021. Economists at Morgan Stanley and IHS Markit believe recovery will begin in either the first or second quarter of 2022.


The changing nature of business, given social distancing requirements, low consumer confidence, and job creation, will weigh on the steel sector—and, by extension, raw materials prices—in Q2.


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