October Scrap Market Conditions
Entering the fourth quarter, it seems like the ferrous and non-ferrous scrap markets have lost a little steam (except secondary aluminum) and have entered a mild correction phase. The good news is that domestic manufacturing activity continues to recover from the spring shutdown of so many factories across the country. On October 1, The Institute for Supply Management reported that their purchasing managers index of manufacturing activity was above 50 for the fourth straight month (55.4 in September). Any number above 50 indicates expansion, while any reading below 50 indicates contraction. Additional good news is that the price of domestic HRC is now above $630NT, a 12 month high) supported by increasing demand from the automotive, construction, and housing sectors, nominal tonnages of imported steel, and tight inventories of finished steel created by steel mills limiting their production. Looking forward, the issues will be whether HRC prices are sustainable at the current level and/or whether long term demand for HRC will increase enough to offset new EAFs coming online over the next two years. The not so good news is that China’s infrastructure is currently not consuming the record breaking output of their domestic steel mills. Hence, China has begun to increase its export of various steel products including HRC and billet. Turning to the October ferrous scrap market, a strong export market off both the East Coast and West Coast supported domestic scrap price increases over the past several months. Unfortunately, that support has dissipated with Turkish steel mills dropping out of the deep-sea cargo arena over the last two weeks waiting for lower price offers in order to be able to adjust their finished steel prices to be more competitive in the world market (last night a Turkish steel mill bought a deep sea cargo at $9GT less than their last purchase). Concurrently, Southeast Asian steel mills have also stepped back from the ferrous scrap market due to weakening downstream demand for their finished steel products. Domestically, scrap flows keep increasing and now exceed current demand. U.S. steel mills could have easily lowered their buying prices this month but that decision would have undoubtably hurt their plans to keep the HRC price at or above moving current levels. Accordingly, it is no surprise that October domestic scrap prices have quickly settled sideways in most regions of the country, the exceptions being East Coast and West Coast prices which have settled down $10GT for all grades. November and December scrap prices are expected to drift a bit lower as scrap flows continue to outpace demand, domestic steel mills working fewer days because of the Thanksgiving, Christmas, and New Year holidays, and steel mill programs reducing year end scrap inventories for tax purposes.
The non-ferrous scrap markets, with one exception, have also taken a few steps back as we move into October. As the election approaches, we should expect continued volatility in the terminal markets driven by positive or negative news.
In the copper world, demand for red metals has slowed down with supplies outpacing requirements principally because China is out of the market until the middle of December, domestic generation of copper scrap is increasing in the U.S., and mills have planned outages for the fourth quarter. Copper has been and will continue to be the most volatile non-ferrous commodity during this time with daily swings of $0.15lb. already occurring.
Aluminum is once again the bright spot in the non-ferrous scrap arena. LME aluminum prices have been relatively stable but the drop in the Midwest premium has caused a softening in demand and weaker prices for some segregated alloys (5052) and extrusions. Secondary scrap aluminum prices continue to move upward with increasing demand from the automotive sector plus domestic secondary ingot producers are having to compete with aggressive overseas buyers for U.S. generated scrap.
300 series stainless steel prices have weakened over the past few weeks as LME nickel dropped over $0.60lb. in September. Major consumers have been unable to fill their order books and do not believe demand for their products will increase during the fourth quarter. Scrap intakes remain below average and should keep prices from falling much further.
In conclusion, we should remember that our economy is still digging out of the deep hole created by the Covid-19 pandemic. We cannot and should
not expect the same rapid growth we have enjoyed during a robust third quarter to continue into the fourth quarter and first few months of 2021. The keys to continuing our recovery will be positive employment data and people’s ability and willingness to spend their hard earned dollars.