US domestic scrap greatly influenced by low Turkish demand

Early June to-date overview

After the June buy-cycle, pricing in the US East Coast scrap markets was significantly lower than anticipated.  Relative to May, June pricing for East coast scrap reflected a fairly significant drop.  Prices for HMS I scrap declined by $51/mt; for shredded scrap prices dropped between $51 and $56/mt; while the price decline associated with busheling scrap ranged from $31-$41/mt.

Price patterns as predicted for the Ohio Valley and Midwest regions generally held with expectations.  Cut grades declined by $20-$30/mt while demand for prime steel remained strong.  Prices per region are listed below.

Turkish producers reentered the market in early June, while limiting steel acquisition to a single US cargo.  This most recent booking called for 15,000 mt of HMS I/II scrap to be delivered at a price of $235/mt CFR.  This constitutes a reduction of $95/mt CFR relative to the last ex-US cargo booked in early May.  Terms of the June booking also called for 20,000 mt of shredded scrap to be delivered at $240/mt CFR, and 5,000 mt of P&S grade scrap to be delivered at $245/mt CFR, all for June shipment.

Throughout June, Turkish producers have met their scrap needs through a combination of local acquisition and/or ex-EU and Ex-Baltic cargoes.  For instance, terms were reached in early June for HMS I/II 80:20 scrap from two sources.  This includes ex-Baltic scrap at $225/mt CFR and ex-EU scrap at $226/mt CFR.  An accentuation in the downward pricing trend is suggested by several recent bookings over the week.  Currently, ex-Black See A3 grade scrap in Turkey are concluded in the range of $212-$216/mt while Ex-Baltic HMS I/II has been booked at $222/mt, bonus scrap at $232/mt and rail scrap at $237/mt, all in CFR terms.   

Expectations for the East coast and inland markets

Export dynamics exert a tremendous influence upon the East coast scrap market.  Sources close to the market have informed SteelOrbis that HMS I/II 80:20 may fall to as low as $168-$173/mt ex-warehouse.  Concerns as to the export outlook for July have also been raised.  Due to a significant decline in market prices, export firms will encounter reduced margins.  As a result, US sourcing may become less attractive.  In addition, this downward pressure on pricing may easily continue in the near term.  For instance, US demand for HMS I/II 80:20 is relatively weak relative to higher qualities of steel.  In addition, a similar pricing trend may be witnessed in the rebar market.

Thus, East coast pricing is predicted to decline in the following ranges:  HMS I scrap at $183-$188/mt, shredded scrap at $208-$218/mt, and P&S scrap at $193-$203/mt.  Conversely, busheling scrap is expected to maintain strong market pricing in the $243-$264/mt range.  This is because prime grades, under current market conditions, enjoy relatively strong US domestic demand. 

Due to the ripple effect from the export market, seasonality, 1-2 week shut downs at some regional mills, and decreasing import pricing in some lines, inland sources from Pennsylvania to various cities in the central Midwest are expressing a consensus of $10-$30/mt weaker across the board with adequate spreads between grades.  Multiple sources have informed SteelOrbis that domestic demand has remained steady throughout the month, neither gaining nor losing steam.  Consensus expectations for prime suggest either sideways or down $10/mt.  HMS I scrap and shredded scrap are forecasted to trend down $20-$30/mt depending on the mill and region. 

Also factoring into the July buy-cycle are the Independence holiday in the United States on July 4th and the Ramadan Feast that also begins on July 4th but runs through the week in Turkey.  On the export side, some believe these ongoing purchases by Turkish steelmakers may be factoring in buys for delivery post their holiday and wonder whether ex-US bookings for July shipment to Turkey will succeed.    In regards domestic sales, given the holiday and previous experiences, one scrap trader cautioned against delays in market entry as Wednesday and possibly Thursday could see a trading frenzy.

In regards the potential effect of China Tax audits to minimize the ongoing export of billets under relabeling practices, the opinions from several contacts close to SteelOrbis range from positive to negative.  On one side a decrease in exports should help push demand for scrap up and therefore, scrap pricing, but on the other side, the availability of cheaper finished goods ex-China could affect demand at mills and, therefore, decrease demand for scrap.  It is evident the influence is still widely unknown. 

As an apparent trend, scrapping firms are currently avoiding long-term market positions.  Instead, they are utilizing existing inventories to the extent possible.  According to a source close to SteelOrbis, inventories appear adequate through the summer.  However, scrap firms are continually monitoring the situation, while making every effort to maintain a steady inflow and outflow at sites.

June settled pricing for US regions