US flat-rolled steel mills have cashed in on the widest scrap-to-finished steel price margins in the last 1.5 years, as mills held industrial prime grade prices generally unchanged in the October scrap trade while US hot-rolled coil (HRC) spot prices climbed higher.
The spread between #1 busheling scrap delivered US Midwest mills and HRC selling prices soared to $430/gt ($387/st), the highest since 15 April 2019, this week as Argus assessed HRC ex-works Midwest at $650/st. The average spread so far this month is up by more than $64/gt from the September average spread of $341/gt, and up by nearly $48/gt from the average monthly spread last year of $358/gt.
The rally in US HRC prices came amid an imbalance between supply and demand in the market with tight finished steel availability and firm demand driving prices higher, while lead times stretched out to 8-10 weeks.
Prices have rallied by more than 44pc since hitting a yearly low of $450/st in mid-August, with some market participants expecting prices to rise to $700/st by the US Thanksgiving holiday and remain there through December.
The bump up in mill margins came on the heels of generally flat scrap prices on a national basis for October, which left some US domestic scrap recyclers under the impression that the surge in margins came at their expense.
"I am totally bewildered by the fact that HRC could hit $700/st soon, yet scrap pricing for primes went no change," one Midwest supplier said.
But steelmakers cited several factors which led to relatively flat domestic scrap prices in October, including strong availability of prime scrap grades, a handful of US import cargoes due to arrive in the US in late-October to early-November and a number of upcoming outages next month.
"There was no reason in October to give away metal margin the mills need to regain to get back in the black again," one Midwest scrap consumer said. "The last several months have been tough on metal margin as scrap went up fast, as did steel, but steel mills were dealing with lots of old, lower priced orders."
Other steelmakers noted that while HRC and prime grade scrap prices trend together the historical correlation ebbs.
"At the end of the day, scrap and HRC prices are only loosely correlated and both should and do operate on their own supply/demand curves," one Detroit consumer said.
