US ferrous scrap steel prices edged slightly higher in April as mills (particularly long product electric arc furnacess) were back in the market – restocking for the spring season. Shredded scrap was up around $5 per metric ton on average to just over $260/long ton delivered to midwest mills.
Is this the beginning of a rally or a dead-cat bounce with the market doomed to hit fresh lows later in the year?
Neither description really fits the bill, in our opinion. We expect prices to trade in a narrow range through the rest of the first half of 2015 before slowly improving in the final quarter of the year. However, we don’t discount scrap moving to below its recent lows at some point in the next few months.
Domestically, steel mill utilization rates dropped to below 70% in March and have stayed there. U.S. Steel, ArcelorMittal and Evraz have all idled mills, while many others have cut utilization amid weak steel demand (particularly anything exposed to oil and gas tubular markets) and high inventories of flat steel products.
Steel imports are still arriving, but will slow down sharply in the second quarter and through the remainder of the year as US steel prices are no longer priced significantly above markets in the rest of the world. Weaker-than-expected US manufacturing will also mean that it will take some time to work those inventories off. As such, we don’t expect US steel mills to reboot until September or so.
Weak Export Demand
Meanwhile, the core East Coast export market of Turkey needs less scrap this year as poor domestic demand and regional turmoil in its core export markets (Iraq, Yemen etc.) curbs its steel output, while the strong US dollar will also mean a more competitive environment for US scrap exports as Europeans grab market share. The result will be plentiful supply for domestic steelmakers.
Guest contributor James May is managing director of Steel-Insight, a steel industry price-forecasting publishing company, based in Toronto. May has been a steel industry analyst for 15 years and advises some of the major global steel trading companies, steel producers and steel consumers on the outlook for steel pricing and industry trends. For more information, visit www.steel-insight.com.