Amid a string of steel mill outages and a drop in export activity, prices in October dipped again for the sixth time in the past seven months.
Average ferrous scrap pricing for October settled at $220 per gross ton, down $40 from September, according to an analysis by Cleveland-based Majestic Steel USA. Prices are now at their lowest levels since October of 2016, according to the analysis.
No. 1 heavy melt steel (HMS) lost more than $20 in value for the month, falling from $208 per gross ton in September to $188 per gross ton in October, hitting a multiyear low, according to a price analysis by Greg Brown, president and CEO of Romulus, Michigan-based Benlee Inc., a roll-off trailer manufacturer.
As of Oct. 14, No 1. HMS and busheling grades were down nearly 45 percent year over year, while shredded automotive scrap was down 35 percent, according to pricing from Fastmarkets AMM.
Reports in the middle of October indicate that deep-sea scrap import prices in the Turkish market increased in the latest bookings for November shipments, leading some scrap sources to predict a sideways market heading into next month.
“I can’t imagine this not being close to the bottom because flows have just stopped,” says a scrap processor based in the Southwest.
“Demand overall has waned. With all the outages and reduced buys, it’s becoming more and more difficult to place tons month in and month out.” – a scrap buyer in the Midwest
Some, however, don’t share in the optimism.
“I think a lot of people are really hanging their hats on the exports to Turkey kind of flattening out. ... I usually look at the markets as ‘glass half-full’ type of guy, but I just don’t see it,” says a scrap buyer out of the Midwest. “I think there will be a lot of scrap overhanging in the market and wouldn’t be surprised if prices went down another $10-20 in November.”
The U.S. steel industry outlook provided by Moody’s Investors Service, which provides economic research regarding risk, performance and financial modeling, matches the more pessimistic of these two predictions. In the beginning of October, the company revised its outlook for the U.S. steel industry from stable to negative in light of “ongoing weakening in economic indicators, falling steel prices and downward revisions in outlooks for the global manufacturing and chemicals sectors,” it notes in a news release.
“The high prices seen in the first half of 2018 were not supported by underlying demand fundamentals ... but more the market’s expectation of the U.S. imposing import tariffs, as well as supply concerns, and, as such, some price correction was expected,” Moody’s Senior Vice President Carol Cowan elaborates.
With planned and unplanned mill outages across the country, U.S. steel production has been declining, dropping five out of the last seven weeks as of Oct. 12. According to the American Iron and Steel Institute (AISI), Washington, in the week ending Oct. 12, domestic raw steel production was 1.82 million net tons, while the capability utilization rate was 78.7 percent—a slight uptick from the previous week, when the capability utilization rate sat at 78 percent.
Scrap sources say demand from steel mills in October seems to have picked up slightly from September, perhaps to take advantage of the low pricing environment; however, moving metal still hasn’t been easy.
“Demand overall has waned,” says the scrap buyer in the Midwest. “With all the outages and reduced buys, it’s becoming more and more difficult to place tons month in and month out.”
With the weak pricing environment, mills aren’t anticipating a marked improvement through the rest of this year, with preliminary third- and fourth-quarter financial results reflecting lower-than-expected earnings for Pittsburgh-based U.S. Steel Corp., Portland, Oregon-based Schnitzer Steel Industries and others. Analysts at UBS Group say the General Motors strike involving nearly 50,000 employees who are part of the United Auto Workers union likely has had a hand at weakening the market. The strike appears to have been resolved as of Oct. 16, but the United Auto Workers union must still vote to ratify the contract. A Bloomberg article notes that an S&P gauge of steelmakers had declined 8.6 percent in mid-October since the strike began Sept. 16.
As such, some steel producers around the country are making other operational adjustments beyond mill closures. U.S. Steel recently announced it is implementing a new operating model and organizational structure that it expects will reduce costs, in addition to its purchase of a minority interest in Arkansas-based Big River Steel.
Other steel mills are shutting their doors altogether. In early October, Bayou Steel Group filed for bankruptcy and laid off more than 375 employees ahead of a scheduled November outage at its mill in LaPlace, Louisiana. The company cited “a severe lack in liquidity” for its closure, but the state’s governor said he thought it had to do with tariffs on scrap imports.