For several years, steelmakers in the United States have decried what they consider the ill effects on their pricing power caused by an overabundance of output from mills in China. In 2020, an additional concern is arising over whether that nation will be consuming a much lower volume of its own steel.
Ferrous scrap processors have seen fewer of their export tons head to China in the past several years, but a glut of steel in the global market is likely to put the same downward pressure on scrap prices that it has put on steel prices.
Metals markets in February began showing widespread bearishness in reaction to the coronavirus outbreak in China that has greatly scaled back economic activity in that nation.
Prices for aluminum, copper and steel headed on a downward trajectory in late January and into February, and early February ferrous scrap transactions followed that trend.
Ferrous scrap export prices in early February, as measured by Fastmarkets AMM surveys, were down $25 per ton off the East Coast compared with one month earlier. West Coast pricing slid by $13 per ton.
Fastmarkets AMM Midwest index pricing for February showed roughly $20 per ton declines for obsolete grades (shredded and No. 1 heavy melting steel, or HMS), while prompt grades, or busheling, fell by fewer than $10 on average.
A ferrous scrap buyer in the Midwest whose company sells to domestic mills and foundries says demand held reasonably steady in the first six weeks of 2020, while supply received a boost after scrap prices rose in December 2019 and in January.
“I believe anyone you ask will say there was a lot of disconnect and confusion in the February market.” – a recycler based in the Midwest
“Scrap generation for January was pretty strong,” he says. “We had one of our top three months compared to all of 2019.” In his region overall, he says, after the price increases, “a lot of demo scrap and auto bodies hit the market” from “demo guys and auto salvage guys who had been holding on to scrap.”
Since supply overall—and particularly obsolete scrap—was “overhanging the market for February,” the Midwest-based recycler does not find it surprising that prices for shred and HMS suffered.
“That, along with weak export numbers off the East Coast, really pushed down prices this month,” he continues. “Toss the coronavirus into the equation, and I believe anyone you ask will say there was a lot of disconnect and confusion in the February market.”
In late January, the China-based Shanghai Metals Market (SMM) information service pointed to the likelihood that furnaces that cannot be easily idled will keep producing metal, while parts of the construction and manufacturing markets that consume it appear poised to stay on a lengthy hiatus in China.
“A potential demand recovery delay is set to weigh on prices of steel in the short term, as steelmakers have kept their blast furnaces running during the holidays,” SMM reports. The Chinese Lunar New Year holiday scheduled to end Jan. 27 was instead extended in what were essentially mandatory quarantine measures in several major population centers. As of the week of Feb. 10-14, it was still unclear when many large employers would resume operations.
A Jan. 29 Wall Street Journal article observes that “China’s northern steelmaking heartland” has had relatively few coronavirus cases, meaning steel output in the nation could stay largely on track. That is likely to create a supply glut in a situation where, even before the virus, “China’s steel output has grown much more quickly in recent months than measures of demand,” Nathaniel Taplin writes.
In mid-February, SMM reports, “activity levels remain subdued” with many metal end users “requiring government permission to restart,” including in the manufacturing hub of Guangdong province. Although “inventory is rising for most metals,” SMM reports that “trading activity is starting to return in most areas, and overall confidence in future demand remains solid.”
As of mid-February, concerns about the Chinese economy had not fully deflated business optimism in North America. Stock prices were largely holding steady or rising, and the construction and automotive sectors were expecting decent years in 2020.
Several automakers reported January sales figures that met or exceeded expectations, and that could put the industry on track to produce and sell about 16.8 million passenger vehicles. That would be below the 2019 figure of 17.1 million vehicles, according to Detroit- based Automotive News, but above an earlier 2020 forecast of 16.7 million.
On the construction front, Ken Simonson, the chief economist of the Arlington, Virginia- based Associated General Contractors of America, says, “Both the actual spending totals for December and our members’ expectations for 2020 point to a positive year for all major categories of construction.”