The last ex-US deals to Turkish mills kept steady at HMS I/II 80:20 scrap at $229/mt CFR, shredded scrap at $234/mt CFR and bonus grade scrap at $239/mt CFR. This week Turkish mills focused on finished goods sales and have limited their imported scrap buys. To the extent necessary, short sea scrap sources have been selected. Presently, ex-Black Sea offers are placing pressure on US exporters to soften offer prices. Ex-US offers are being heard at $226-230/mt for HMS I/II 80:20 scrap in CFR Turkey terms.
Over the first seven months of 2016, U.S. steel scrap exports declined approximately 10 percent year-on-year. Market participants inform SteelOrbis that a substantial increase is unlikely in the foreseeable future. In June, the US exported 1.034 million tons of scrap, a reduction of 21.5 percent relative to the prior month, and of 12.1percent relative to the same period last year. In June, the largest export destination of US scrap was Mexico, not Turkey, the traditional leading importer. For the month, Mexico accounted for nearly 22 percent of US scrap exports, followed by Kuwait, Taiwan, Peru and Turkey.
Several factors are ultimately responsible for the observed outcomes. One involves the strength of the dollar. Relative to foreign currencies, the US dollar has appreciated in 2016-i.e., roughly over 9 percent against the euro, for example. A stronger currency makes U.S. exports less competitive relative to goods produced abroad.
Not only are exports hurt by a strong dollar, in certain instances, it is now cheaper for US firms to import scrap from other nations. For instance, flat-rolled mills recently imported several cargoes of busheling bundles ex-Europe. One steelmaker in the South in particular imported as many as five vessels-or roughly 200,000 mt-of scrap-while another imported two. As a result, current market conditions have resulted in an environment that encourages imports, while discouraging exports.
A second contributing factor is the global availability of scrap steel. As a globally traded commodity, many regions of the world offer products that directly compete with US scrap exports. When certain factors cause the US market to be less competitive, other sources are ready and able to step in and fill the gap quickly. For example, some firms in Asia announced steep increases in scrap imports, but despite the significant increase in demand from this region, some have reduced ex-US purchases of scrap or limited increases in pricing of ex-US scrap as they have alternative scrap sources.
A third contributing factor acts as a constraint on exports of US scrap steel: tight supplies. A direct feedback loop links the domestic and export markets for US scrap, since the conditions in one has a direct impact upon the other. SteelOrbis has been informed that, in some cases, US mills are operating with tight scrap supply on the ground due to limited supply flow. Supply is currently limited in part because market prices are unable to induce sellers to come to market. Market participants inform SteelOrbis that intake has fallen by 30% in the past two months. For example, SteelOrbis has been informed that demolition companies in some cases are not making any offers as they wait for better pricing, while auto recyclers are selling only enough car bodies to maintain cash flow. In addition, the 90-degree-plus temperatures and high humidity days have discouraged peddlers from gathering scrap and bringing it to dealers' yards.