Domestic ferrous scrap prices settled sideways across the board in June; now, participants are setting their sights on expectations for July. Most believe that it will be a similar outcome as in June, with stability prevailing in the trends for each grade. Yet some fundamentals could cause some grades to increase by a small margin, as with prime grades. And price differentials between markets could make some locations catch up to others on certain grades.
Export market the sour spot
The export market, on both coasts, keeps offsetting any positive sentiment for cut grades. The export market to Turkey has been lagging in recent weeks, and the outlook for the rest of the year is not as positive. Higher energy costs and fluctuating interest rates have placed downward pressure on Turkish rebar, which has diminished their scrap consumption. The price of HMS I/II 80:20 from the US East Coast (USEC) has been on a downward slide since May 25, close to a month now, reaching $397.5/mt CFR Turkey from $414.5/mt CFR. Before that, it had been growing continuously since Feb 23 when it was at $371/mt CFR.
The start of the US-Israel-Iran war at the end of February has increased energy costs worldwide and caused uncertainty in commodities’ markets, prompting many scrap consumers and exporters in N. America to try and protect their margins. Invariably, that has meant a reduction in the costs of their scrap inflows.
Scrap prices to the USEC and US West Coast (USWC) have decreased in the past few weeks, at a different pace depending on the market. In the USWC, bulk scrap prices to the docks fell by $25/gt during the weeks of May 15 and May 26, with HMS I falling to $250-260/gt delivered Los Angeles export yard from $275-285/gt delivered during that period. Containerized scrap prices have followed suit in USWC, the price of HMS I/II 80:20 has fallen by $5/mt for three consecutive weeks; to $330/mt FAS Long Beach port from $340/mt FAS port. And on Wednesday, there are reports that there are already quotes being negotiated for the grade at $325/mt FAS port.
Southeast Asian scrap demand has lowered due to the rainy season in several countries, such as in Taiwan, where the rain has curtailed construction activity and limited Taiwanese rebar demand. In Vietnam, it has been a similar situation, as reported by SteelOrbis last week. In Pakistan, this week, it was reported that the uncertainty surrounding the US-Israel-Iran war is still making some importers cautious, while in Bangladesh, a soft finished steel demand and higher energy costs have also limited the scrap import market.
Yet, at least when it comes to the Asian scrap import market, there is hope that the downward pressure could end very soon. The latest developments in the war point to a possible resolution, at least in the short term. An agreement has been reached to reopen the Strait of Hormuz with a 60-day negotiating period that will, hopefully, reach a definitive end to the war. Additionally, construction activity is expected to return to normal levels, where the rainy season is a factor.
Positives for primes
Scrap demand in the US remains brisk, with the steel sector’s installed capacity utilization rate linking seven consecutive weeks above 80pc (the last reported rate for last week at 80.3pc), a phenomenon not seen in years. Moreover, finished steel prices, particularly for hot-rolled coil, remain on a positive run for this year, having grown by 22pc since the start of the year to $1,114.75/nt ex-US Midwest mill from $909.8/nt.
Additionally, there are reports that ample volumes of #1 busheling that were available at the start of the year in N. America, stockpiled in recycling yards, have been mostly consumed. And on top of that, there is the possibility that Brazilian pig iron could receive a 25pc import tariff into the US, as it was removed from the US Trade Representative’s list of exclusions ten days ago. Negotiations between US and Brazilian organizations are ongoing regarding this matter, but if the tariffs remain in place, it could affect #1 busheling consumption in the US, possibly increasing the price for July.
