Healthy exports soften landing for US scrap market drop

Domestic scrap prices are down again this month, as demand keeps declining due to the weak steel market. Back in June, the state of the scrap market was very different. Prices were at their peak because of the strong demand from domestic steelmakers, and prime industrial scrap was hard to find. Since then, the picture has turned from rosy to black as steelmakers are slowing production in the fourth quarter, resulting in slow buying activity in the scrap market and price deterioration. Scrap prices have been dropping since the beginning of November 2006. Busheling scrap has taken the biggest hit, dropping an average of $30 /long ton, while shredded scrap prices have dropped an average of $15 /long ton. Busheling scrap is used mostly for flat rolled steel production. Not surprisingly, the US flat rolled market has softened the most compared to the markets for other steel products, and still has some more room to fall before bottoming out. Some industry insiders say that the domestic scrap market will continue to soften for remainder of this year, as inventories are still higher than usual. Currently, steel stockists and end users are lowering their inventories. However, they will have to replenish them for the better times to come in spring, when demand from the steelmaking industry picks up. US steel production will most likely increase at that time, with scrap expected to register gains in January and February 2007. For now, a steep decline in pricing has been avoided by the steady activity in exports. Most scrap cargo from the East Coast goes to Turkey, Egypt and Greece, while West Coast exports go to China, South Korea and the Far East. The current East Coast FOB ship prices for shredded scrap range from $235 - $245 /mt while No. 1 heavy melt goes for $230 - $240 /mt. While Russia is still a major exporter, more and more Russian scrap is consumed locally. The US is now meeting scrap demand in some of the traditional markets where Russia previously dominated, such as the Far East and Middle Eastern countries. For this reason, the US is now exporting to more markets and countries than before, diversifying its sales regions and obtaining better prices. Export pricing is expected to remain stable before moving up again in the first quarter. Pricing for completed orders of US scrap to Turkey have stayed relatively stable for the past two months. SteelOrbis is informed that a Turkish mill has concluded a mixed scrap cargo booking ex-US at $278.50 /mt CIF Marmara Sea for December shipment. Fifty percent of the cargo is composed of shredded scrap and the remaining half is HMS I/II 80:20 scrap. Last month, a similar order was completed for $279 /mt CIF. The most recent USITC data available shows that during the month of September, the top recipients of shredded scrap from the US were: Turkey at 68,000 mt, Mexico at 42,000 mt, and Taiwan at 34,000 mt. China, which imported 31,000 mt from the US in August, only imported 4,000 mt in September. Neither Malaysia, which imported 85,000 mt from the US in August, nor Peru, which imported 32,000 mt, imported any shredded scrap tonnage from the US in September. However, Taiwan imported significantly more in September, at 34,000 mt, when compared to 3,000 mt for August. The top importers of HMS 1 grade scrap from the US in September were: Turkey at 156,000 mt, Malaysia at 80,000 mt, and Taiwan at 33,000 mt. Another major buyer is Egypt, at 25,000 mt. Korea, which imported 17,000 mt last month, didn't import any HMS 1 grade scrap tonnage from the US in September. The total amount of ferrous scrap exports from the US in September totaled 925,000 mt, 268,000 mt less than the amount exported in August. Year-to-date (up to the end of September) total US ferrous scrap exports reached 7,315,000 mt - a drop of 2.5 percent when compared to the figure of 7,503,000 mt for the corresponding figure of 2005.