January Scrap Market Conditions
Last month we talked about the ferrous scrap market “shaping up to be one of the best end of the year months in the last 45 years”…and the non-ferrous scrap market “poised to have an outstanding month”. Looking back, our crystal ball proved to be most kind to us as both the ferrous and non-ferrous scrap markets exceeded expectations with record scrap flows and prices. December’s strong momentum continued into the first week of January as ferrous and non-ferrous scrap prices continued their upward surge. The Detroit ferrous scrap market opened on January 6th with prices up $90GT on cut grades/shred and up $100GT on prime scrap. It should be noted that Detroit scrap prices have lagged behind other regions over the last several months so the magnitude of their January price increases may or may not be followed in other geographical regions. What did happen, is that mills and scrap suppliers took a step back for a few days to figure out where the prices in each region need to be to satisfy both consumers and sellers. Even though we are still in the middle of the Covid-19 pandemic and December’s higher unemployment numbers were not encouraging, the manufacturing sector of our economy continues to grow as demonstrated by last week’s Institute for Supply Management Manufacturing Index rising from 57.5 in November to a new 2 year high of 60.7 in December, the 8th consecutive month of expansion (any reading over 50 indicates growth). PMI’s around the world also continued above 50 in December for most industrialized countries. Initial January 2021 demand for ferrous scrap is very strong both domestically and overseas. Iron ore prices increased almost 40% in the 4th quarter of 2020 and continued strong the first week of January trading just under $170MT. Our domestic steel capability utilization rate was 74.6% for the week ending January 2, 2021 just 5.5% less than the 80.1% rate of the week ending January 2, 2020. HRC prices have increased $700NT since July. Unfortunately, ferrous scrap prices have increased only a small fraction of that number. On the other side of the coin we must look at some potential headwinds to our current euphoria. As we discussed last month, new steel prices and ferrous scrap prices have gone up too high and too quickly. There appears to be a growing resistance to these high new steel prices and a belief that these high prices are simply not sustainable. Some large tonnage buyers are looking to cut back on their purchases until prices come down to a more reasonable level. Additionally, the publication “Trading Economics” forecasts that iron ore prices will drop to $151.51NT by the end of the first quarter and continue to drop to $132.33 by the end of 2021. Logistical issues revolving around shortages of barges and trucking to move scrap domestically and containers to transport scrap overseas are ongoing and will not be resolved overnight. Furthermore, domestic scrap flows continue to increase and may soon exceed steel mill demand. Finally, no conclusion can be reached without a discussion about China. China accounted for almost 58% of all steel produced around the world in the first 10 months of 2020. The International Monetary Fund projected that China’s economy grew by 1.9% in 2020 making it the only major economy to grow last year. The Chinese Ministry of Industry and Information Technology recently released new guidelines that will permit Chinese companies to import unlimited tonnages of various grades of ferrous scrap. Additionally, China is currently preparing a new 5 year steel master plan that will include increasing the ratio of electric-arc furnaces (EAF) steel production to 15%-20% of total crude steel output. The new plan also includes having blast furnace mills raise their scrap charge ratio to 30% which means that every ton of steel produced by them will use 661.4 pounds of ferrous scrap. Furthermore, the plan will encourage steelmakers that are currently using blast furnaces to increase their usage of EAF’s, and support them in establishing large-scale scrap recycling, processing, and distribution centers. As it now stands, Turkey has been the largest ferrous scrap importer in the world, bringing in just under 19,000,000 tons in 2019. If China goes all in with their new plan in 2021, China could very well surpass Turkey in short order and become the largest importer of ferrous scrap in the world giving a huge boost to future ferrous scrap prices. Accordingly, we do not foresee a collapse in the ferrous scrap market but rather a price correction that could occur as soon as next month.
Non-ferrous scrap prices are continuing their December upward movement on most copper, aluminum, and nickel commodities supported by strong demand, short supply, and high LME prices. Copper continues to occupy center stage recently rising above $3.70 lb. in last several days. Copper scrap units, especially bright and shiny and #1 copper, continue to be in robust demand throughout Asia. Scrap brass prices have hit record levels. Domestic copper and brass mills continued their usual pattern and did not aggressively chase scrap in December. As we start the new year, our domestic mills find themselves in a battle royale with overseas competition to replenish their feed-stocks.
The aluminum market continues to show strength with LME aluminum staying above $2000MT and the Midwest premium back over $0.15 lb.
Almost all aluminum scrap prices enjoyed significant increases in December and are continuing to show strength coming into January with tight supplies and strong demand for extrusions, segregated alloys, and secondary alloys.
Nickel has finally joined the non-ferrous party. LME nickel has increased almost $1600MT in the last month topping $18,000MT last week. A shortage of scrap coupled with steady mill demand and support from higher LME prices have pushed both 300 and 400 series scrap prices higher.
Once again, we believe the best advice is to simply enjoy these ferrous and non-ferrous market while we can.