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

March ferrous scrap trading kicked off in the US on Thursday with a few Midwest mills announcing price increases of $70/gt for prime grades such as #1 busheling, compared to February settled prices.


Secondary grades including #1 HMS, P&S5 ft, and shredded received offers up $50/gt over February levels. The move is in line with regional expectations and scrap yards are expected to trade quickly over the next two days mostly with the trend. 


The expectation firmed up in mid-February from the initial outlook of $20-30/gt that surfaced as February scrap settled.


As prime grades continue to be tight on auto shutdowns and if the price trend originating in Detroit sticks throughout the Midwest it will widen the spread between prime and shredded to record high levels, not seen in several years, also variating per market. In Chicago for example, the spread between prime and shredded would move to $100/gt as it would bring shredded to $450/gt and #1 busheling to $550/gt delivered.


This upside will regain January’s price levels following February’s temporary downturn. The rebounding market strength is derived from the export activity, surging steel prices, hindered scrap flows, increasing freight rates, and transportation issues. The continuing semiconductor shortage has impacted auto production supply chains and, as a result, prime grade volumes too.


The consistent increase of $50/gt on cut and shredded grades and $70/gt on primes against February settled prices, is expected throughout the Southeastern US as well. Texas, which was severely affected not only by winter weather conditions but also blackouts that resulted in mill outages, is expected to trade up in March but in the range of $20-30/gt with possible pushback by sellers into the $30/gt range. 


Some market participants believe that the balance of both mills and scrap yard operations being out on account of the poor electricity should warrant the same move as the Midwest. 


Scrap exports rising

Export prices to Turkey have risen by $65.75/mt in one month for HMS 1&2 (80:20) priced at $464.50/mt cfr on Thursday compared to $398.75/mt cfr on Feb 2. Similar price growth has been witnessed along the US docks and for metallics imports, though with price variation as pig iron reached a peak in January.


Global scrap prices are expected to remain high on strong Chinese influence in the scrap market that is supporting the Asian region’s demand and purchase of imported scrap given the shift to EAFs. Several market participants in Asia and Turkey see the potential of imported scrap prices in Turkey reaching $500/mt cfr on HMS 1&2 (80:20) over the next 1-2months on strong global steel trading and limited scrap supplies.


Metallic imports at par with prime

Recent basic pig iron imports are trending at $560-570/mt cfr Nola with the Feb 26 weekly Davis Index at $551/mt cfr Nola. The price point places the material within the range of prime grade, #1 busheling that now trends at $520-590/gt depending on the region.


Market participants have noted pig iron historically carries a premium of about $22/mt over prime grades, but this connection is no longer deemed what it used to be as scrap is more of a local commodity and pig iron has various global pricing dynamics.


Moreover, as EAF-powered mills are on the rise and are moving up the value chain regarding the quality of steel produced, they are not readily able to shift away from pig iron based on elevated prices against #1 busheling, as their mix depends on specific premium qualities found in pig iron.


Pig iron on a Nola basis carried an average premium of about $95-100/mt over delivered prime prices in the Chicago area, from September 2020 to February this year. Prices for the grade surged above normal levels in late 2020 as China was on a buying spree, raising the prices globally. Meanwhile, the US steel industry was struggling to recover with prices moving erratically, and markets remained out of whack.


Strong steel demand and prices

With mutually complementing information of strong demand, long lead times, and increasing input prices, US domestic HRC is presently trading in the spot market at $1,322-1,389/mt ($1,200-1,260/nt) fob mill, up $198-221/mt against HRC deal levels of $1,124-$1,168/mt ($1,020-1,060/nt) in late January. CRC deal levels are trending about $180-200/mt higher against HRC domestic prices. 


Rebar prices have increased by $23-44/mt at $838-882/mt ($760-800/nt) compared to $815-838/mt ($740-760/nt) fob mill in early January. In February, list prices remained flat after increases in January with several market participants reporting some discounts offered to select customers on volume buys. 


Rebar list prices have been unchanged over the past month. Higher import rebar prices may firm up deal levels, though several sources noted a limited number of import trades, thereby, making most domestic buyers dependent primarily on US mill supplies.

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