Fall has been an apt name for that season in several previous years in the ferrous scrap market. The terms “October surprise” and “November surprise” have one meaning in the political world, but for scrap processors they can refer to an unwelcome plunge in prices.
The October and early November buying periods this year came and went without an unpleasant surprise, with Fastmarkets AMM calculating flat pricing in October and $6 to $10 per ton increases in November pricing based on its surveys of transactions.
“December already feels tight, and the price increases we have seen in the last 10 days on Turkish sales prove just that.” – Nathan Fruchter, Idoru Trading, Lawrence, New York
The flatness of October’s values was confirmed by the Raw Material Data Aggregation Service (RMDAS) pricing from Pittsburgh-based Management Science Associates Inc. (MSA).
Remarkably, MSA’s collected data show national averages for all three major grades (prompt, shredded and heavy melting steel, or HMS) that did not move by even $1. It is the first time since RMDAS began publishing figures in 2006 that pricing for all three major grades were static. “In the past, there may have been a ‘zero’ change on one of the [grades], but not all three,” says MSA Senior Account Manager Jeralyn Brown.
The flatness of October and the minor move upward in November stand in contrast to several previous years. In October of 2019, prices fell an average of $40 per ton, and that was after steep declines already had occurred in June and July last year.
In October 2017, AMM pricing indices pointed to a more than $40 per ton drop for prompt grades shipped to domestic mills, while shredded scrap dropped nearly $30 per ton.
In October 2015, pricing fell by $30 to $50 per ton, and all three benchmark AMM Midwest grades fell below $300 per ton. Prices fell yet more that year in November.
This year, recyclers concerned about a late-arriving December surprise might not have those fears realized, according to early indications. Fastmarkets AMM reports a mid-November export transaction that saw an overseas bidder paying an additional $9 per metric ton for scrap.
A Lawrence, New York-based trader and consultant Recycling Today contacted also does not see a December surprise looming. He points to diminishing supply. “October and November scrap arisings in the United States are below 2019 levels,” says Nathan Fruchter of Idoru Trading “Every recycler I speak to has the same complaint: ‘Less material is coming into the yard.’”
The reduction in manufacturing, construction and demolition activity in several states, related to subsequent waves of COVID-19, has been enough to affect tonnage available to export buyers who purchase key “swing tons” that influence pricing.
Fruchter says, “The writing is on the wall when we see less bulk cargo available to the export markets. December already feels tight, and the price increases we have seen in the last 10 days on Turkish sales prove just that. Make no mistake, supply is tight out there.”
While parts of the U.S. and much of Europe are introducing restrictions to combat a rising COVID-19 caseload, the health situation in Asia has improved, and governments there are spending on steel-intensive infrastructure as economic stimulus measures. (See “Avoiding the worst,” starting on page 36 of the print edition.)
That as well, Fruchter says, will support higher prices. “Global steel production is up, and China is a big contributor.” China “reopened early” after its bout with COVID-19, he continues, “and had an enormous demand for steel, which saw to it that the Turkish mills had great order books.”
Heading into 2021, Fruchter says he is intrigued by the Chinese government’s effort to reclassify some ferrous scrap grades as “resources” so they can be imported after it enacts its “waste” import ban in January. The nation is increasing its electric arc furnace steelmaking capacity and could require higher grades of ferrous scrap.
Fruchter says, “I am bearish on scrap prices, and if China really starts buying in 2021, I’m thinking we could easily see a $50 to $100 per metric ton climb in scrap prices—and as a result a similar rise in steel prices.”
Despite rising COVID-19 infections in the U.S., steel output has maintained its slow but steady rise after the March and April plunge in production.
The Washington-based American Iron and Steel Institute reported a 1 percent rise in crude steel output in the U.S. during the week ending Oct. 31 compared with the week before. The mill capacity rate for the week ending Oct. 31 was 70.4 percent.
The rise in weekly steel production is part of an ongoing rebound since COVID-19-related impacts dropped the mill capacity rate in the U.S. to just 51.1 percent the week ending May 2.