US scrap buying activity improves as supplies shrink

Although a few weeks ago everyone had expected US scrap prices to trend downward in June, prices have remained sideways to slightly up in June when compared to May, due to a slight up-tick in domestic scrap purchasing.

After US domestic scrap prices increased by approximately $43 /long ton ($42.32 /mt) in the first week of May, prices went down $10 /lt ($9.84 /mt) in the middle of the month because of the slowdown in the export market and weak domestic demand. However, low scrap supplies in the market made domestic mills anxious about whether they had enough scrap inventory to continue their current levels of production. In addition, long and flat rolled producers have announced price increases and some of these increases are sticking as they are collecting more orders. If these first price increase attempts are successful, steel makers will no doubt attempt to make further price increases. 

With the reduced levels of US automobile production, there is a very limited amount of high-grade scrap being generated. Meanwhile, the low steel scrap prices compared to last year have slowed down scrap collection activity, resulting in a decrease of approximately 40 to 50 percent in scrap flow to dealer yards. Moreover, as domestic mills have not been buying scrap for the last several months, most of the back-up scrap supplies have been used up already. Therefore, it is believed that the scrap supply will be at unseasonably low levels this summer, and domestic mills are realizing that they need to purchase some scrap now to secure the scrap supply for the coming months.

When compared to the prices in the beginning of May, US busheling scrap prices have gone up by around $10 /lt ($9.84 /mt); shredded scrap prices have increased slightly by approximately $5 /lt ($4.92 /mt); while HMS I prices have stayed neutral. Currently, on the East Coast, busheling prices are in the range of $230 to $240 /lt ($226.37 to $236.21 /mt); shredded scrap prices are between $220 to $230 /lt ($216.53 to $226.37 /mt); and HMS I prices are at a level of $190 to $200 /lt ($187 to $196.84 /mt).

Market sources think that the US scrap market hit bottom in April and expect US scrap prices will go up in July, as there is not much industrial scrap supply in the market, domestic mills are resuming scrap buying, and the export market is fairly active as well. Some optimists think US domestic scrap prices could increase by as much as $100 /lt ($98.42 /mt) by late August.

The latest USITC data which lags several months behind the current conditions shows that the total amount of ferrous scrap exports from the US in April 2009 was 1,411,000 mt, representing a decrease of 313,000 mt when compared to the figure of 1,724,000 mt in March.

The main recipient of shredded scrap from the US in April 2009 was China, at 202,000 mt; followed by India, at 127,000 mt; Turkey, at 74,000 mt; Greece, at 47,000 mt; as well as Taiwan and Pakistan, at 45,000 mt each. Some other countries that imported a smaller amount of shredded scrap from the US during the month include South Korea, Mexico and Thailand.

For HMS I grade scrap, the top recipients of US exports in April 2009 were: Turkey, at 176,000 mt; South Korea, at 106,000 mt; China, at 68,000 mt; and Taiwan, at 51,000 mt. Mexico, Canada and Bangladesh also imported some tonnage of HMS I grade scrap from the US during the period.