July Scrap Market Conditions
Heading into the last 2 weeks of June, there was cautious optimism that July domestic ferrous scrap prices would settle mostly sideways with some markets moving slightly up or down depending on local mill demand. Strong ferrous scrap exports from the United States had driven domestic scrap pricing in May and June. Seemingly out of the blue, Taiwanese mills dropped their buying prices $20GT, other Southeast Asian steel mills began purchasing relatively cheap billets in lieu of scrap, and Turkish steel mills dropped their buying prices because of softer demand for their finished steel products. As we discussed last month, scrap flows around the world have been increasing faster than steel mill demand. This trend continued through June and into the first week of July at which point intakes around the country were only 6% less than the beginning of March. The problem is that domestic and overseas steel mill demand for scrap has not followed suit. Last week’s steel mill utilization rate climbed a few percentage points to 56.6% but is nowhere near the pre-Covid-19 level of 82% in early March. Effectively, this means that hundreds of thousands of tons of ferrous scrap that would have been consumed if steel mills were operating at or near 82%, now represent a large overhang on the domestic and overseas markets and are having a chilling effect on July scrap prices. Domestic steel mills did not miss this opportunity to reclaim some margins with their July scrap purchases especially considering the failure of the HRC price to hold above $500NT. Domestic scrap prices started settling on Tuesday with prime (busheling) scrap down 40GT, shredded down 20GT, and cut grades down $10GT in the Detroit market. Steel mills in other geographical area used Detroit’s lower pricing as their base line and when the dust cleared, most regions saw prime scrap drop $30-$40GT, shredded scrap drop $10-,20GT, and cut grades sideways to down $10GT. The West Coast, South, and Texas areas fared the best with prices settling at down $10GT. \ Looking toward August and early September, ferrous scrap prices will continue soft until such time as steel mill demand starts to catch up with current scrap flows.
There is great joy in the non-ferrous world as we enter July. The terminal markets in copper, aluminum, and nickel continue to support higher scrap prices for most grades. LME aluminum has reached 1660 which is the highest level since January; LME nickel continues to move upward; and copper is up $0.12 lb. since last week and has moved up in 12 straight trading sessions.
It has been quite a dry spell for the scrap aluminum market with prices and demand for some alloys finally showing some improvement in June. In the later part of June, the domestic aluminum billet premium moved up for the first time since March 27 as aluminum extruders slowly began to start their presses when the automotive supply chain began to show some life. Extrusions and low copper alloy prices have moved upward in conjunction with the terminal market. Demand is gradually improving as automotive production slowly builds up. Aerospace is dead with no short term improvement in the cards. The secondary scrap aluminum market is seeing a steady increase in demand both overseas and domestically with prices inching upwards for most grades except the 2000 and 7000 series alloys which are tied to the aerospace industry.
300 series stainless steel scrap prices have steadily improved as LME nickel closed above $6.00 lb. for the first time since the last week of January. Stainless steel scrap prices usually soften during the summer months due to planned furnace outages, employee vacations, and slower industrial scrap generation. Additionally, lower carbon steel scrap prices often have a chilling effect on stainless steel scrap prices. However, stainless steel mills have carefully reduced their production during the last few months to match anticipated consumer demand thereby allowing their finished steel prices to remain firm. 300 series stainless steel prices could continue to rise as long as LME nickel prices remain strong.
Scrap copper prices continue their surge fueled by strong worldwide demand for bare copper units and uncertainty about potential supply interruptions in Chile’s copper mines. LME copper prices have reached the highest level since early January and may be headed for a correction in the near future. Demand for red and yellow brass continues to be strong and prices have moved up accordingly.
In conclusion, I think it is important to revisit a few of our thoughts expressed last month. Even though Monday’s PMI released by the Institute for Supply Management improved to 52.6 indicating our economy expanded in June, the fallout from the Covid-19 pandemic is not going to be resolved overnight. Our recovery, and the recovery of most countries around the world, will be gradual and extend well into 2021.