Participants in the US domestic ferrous scrap market believe that all grades could trend sideways in June. Some of the positive sentiment towards prime grades, which were mentioned could again increase by $20/gt like they did for some markets in June, has dissipated this week as stakeholders differentiate between their aspirations and reality. #1 busheling continues to be undervalued according to several sellers, yet based on recent months, they expect mills to continue to try and exert downward pressure on scrap as much as possible, especially when they just raised prime grades in May in some markets.
It has been also mentioned that in markets where #1 busheling rose, mills would not want the spread with shredded to widen even more. For example in Cleveland, the spread between #1 busheling and shredded widened to $45/gt when the former rose to $475/gt delivered consumer and the latter remained at $430/gt delivered. If mills increased prime grades again in Cleveland they could probably be looking at a similar increase for shredded also in June or for July, and that could impact other grades, as a consequence.
The price of hot-rolled coil (HRC) has reached this week $1,075/nt ($1,185/mt, $1,204/gt) ex-mill US Midwest growing in each of the last eight weeks. With #1 busheling sitting at $450/gt delivered consumer in the Midwest, this represents an approximate spread of $750/gt between finished steel and ferrous scrap prices, at least when it comes to comparing HRC with #1 busheling, two commodities closely linked together. According to seasoned participants, the historical spread has been closer to $400/gt, so it has almost doubled in the past couple of years. The spread between #1 busheling and pig iron is also at a historical high, with pig iron prices at $510-530/mt ($518-538/gt) CFR New Orleans (NOLA), representing an approximately $590-600/gt delivered to US Midwest consumer equivalent. A close to $150/gt spread with #1 busheling.
For secondary grades, the consensus seems to be a clean sideways across the board, with little dissent. Flows are reported as healthy yet not generous; maintenance shutdowns are not expected to impact demand much; and while temperatures keep rising, they have not reached the high summer peaks that usually affect scrap generation. In general, contacts across the US envision a 2-4 month period of stability for the scrap market, there are already rumors of a sideways market in July.
Movements in exports
The export market has seen more activity and movement in the past weeks, and it all seems to stem from the uncertainty derived from the changes in oil, energy, and freight costs due to the US-Israel-Iran war that began at the end of February this year. Rising bulk ocean freight costs have seen export prices to Turkey increase, and US-origin HMS I/II 80:20 rose by 11.5 percent since March to $414/mt CFR Turkey from $371/mt CFR. The growth has been constant with no setbacks, yet it is possible this might have changed this week, as the latest Turkish purchase, coming from the UK, was reported at $406/mt CFR. Recent political developments in Turkey occurred on Thursday, with a Turkish court suspending the leadership of the main opposition party. This has some contacts in Turkey already discussing a possible depreciation of the Turkish Lira, which could stall further negotiations on scrap imports.
The price increases for the export market have not really translated into similar benefits for the sellers to the docks.
The price of HMS I to New York and Philadelphia docks has remained in the $280-290/gt delivered export yard for several weeks now. Sellers express the same frustration as those in the domestic market, where benefits are not passed down. Exporters, on the other hand, have predictably cited margin protection as the main reason for their refusal to increase the costs of their inflows.
