Participants in the US domestic ferrous scrap trade still expect a largely sideways trend during the June domestic trading, yet some have begun to express bearish sentiment after the Memorial Day weekend. In particular, some point to shredded as a possibility of decreasing by $10-20/gt due to generous flows.
In this case, a spread between shredded and #1 busheling was already established in April, when shredded contracted by $20/gt nationwide and prime grades remained static. For June, contacts believe several factors are again propping up prices for prime grades, resulting in an even wider spread between shredded and #1 busheling. In Chicago and Detroit a $20/gt spread already exists between the grades, the usual level in recent years, as #1 busheling sits at $450/gt delivered consumer and shredded at $430/gt delivered in both markets. Yet in markets such as Cleveland, prime grades grew by $20/gt last month while shredded trended sideways, establishing a wider spread of $45/gt between both grades, with #1 busheling at $375/gt delivered consumer and shredded at $439/gt delivered.
It is difficult to envision mills wanting to separate #1 busheling and shredded even further in those markets, yet participants see the latter as the grade with the most robust flows. Incidentally, it was reported recently that some scrap processors bought additional shredders in Southern states near the Mississippi River.
For their part, prime grades are again supported by a healthy finished steel market, where the price of hot-rolled coil (HRC) has continued its good run, rising almost weekly over the past 18 weeks. Last week it grew by $10/nt to $1,084.76/nt ex-US Midwest mill. Lead times have also gotten longer. Some of the more positive sellers have mentioned that even a slight increase in prices for prime grades is not out of the question. The basic pig iron (BPI) market has remained solid, even though participants have noted that an influx of Indian material could affect price indexes. Last week, the price of BPI in the US dropped by $7.5/mt to $510-525/mt CFR New Orleans (NOLA).
Nevertheless, some contacts report signs of decreased demand for scrap as the summer approaches, and, in that case, it could be due to mills seeking to maintain margins by lowering their scrap costs and tightening their inventory management. Some sellers report that some mills have already openly expressed their intention to make smaller purchases in June, and that scrap order cancellations may surface in the coming days, although none have been seen just yet.
On the other hand, the hot summer weather also limits scrap generation, possibly squeezing flows. Additionally, the global political situation has caused diesel and transportation costs to rise significantly in the US this year, making it more expensive to transport scrap. In this case sellers may look to limit the range of their scrap deliveries, essentially making it harder for mills to source material.
Exports
The export market has not helped in the past few days. Prices to the US East Coast (USEC) docks fell by $10/gt across the board this week as exporters try to protect margins in light of a softer sentiment in the Turkish import market. In Turkiye, higher energy prices could arrive in June, prompting mills to adjust their operations and possibly leading to lower bids. The last US sale kept the price of HMS I/II 80:20 at $414-415/mt CFR Turkiye, even though a later sale from the UK showed a possible indication of softening in future US sales, the ex-UK sale for the grade was done at $406/mt CFR Turkiye.
On the USWC, the situation has not improved for sellers to the docks, as the region has seen two consecutive weekly decreases: one of $15/gt across the board and the other of $10/gt. This week, the price of HMS I fell to $250-260/gt delivered Los Angeles export yard. Participants in the USWC have reported that higher freight costs have made it expensive to conduct trading. The ocean freight rate for bulk material from USWC is reported in the $80-88/mt CFR Bangladesh range from around $64/mt CFR earlier this year.
The export market may impinge on cut grades during the US June domestic trading cyce, yet both sellers and buyers report that demand for those grades remains stable. This could lead to the sideways trend that is expected for these grades.
