Viewpoint: South hopes for scrap price increases

Ferrous scrap prices are expected to rise in the south and southeast through the remainder of the year, barring developments in a Section 232 investigation by the US Commerce Department.

Mill demand across the country for US-flat rolled sheet is expected to remain balanced for the remainder of 2017, which should keep scrap demand flat. End-use market demand trends for finished steel are expected to continue through the rest of 2017, as construction and the energy sector remain positive, with concerns lingering over slowing automotive demand.

Ferrous scrap demand should increase in the south with the start of Commercial Metal's (CMC) micro mill in Durant, Oklahoma. The fall-2017 launch of the plant, to serve northern Texas, is expected to deliver a 350,000net ton (317,500/t)/year capacity mill.

Of those surveyed this week by Argus, nearly 70pc said scrap prices will rise by $20-60/gross ton (t) and the remainder said prices will likely hold at current levels for the rest of 2017. Most market participants expect the unusually large price differential between shredded scrap and #1 busheling to hold amid tight supply after auto manufacturing activity dropped in the US.

Prime scrap prices rebounded in February as large steel producers aggressively sought the material in lieu of direct reduced iron (DRI) supply. This, coupled with supply disruptions in pig iron from Ukraine and Brazil, boosted prime prices and kept obsolete grades from dropping.

Pig iron supply has improved in recent months and scrap imports have surged. Still, the inflow has struggled to keep pace with rising mill demand for prime scrap and the drop in scrap generation at autmotive plants.

Combined imports of pig iron and ferrous scrap into the southern areas tracked by Argus — Mobile, Alabama; New Orleans; and Charleston, South Carolina — rose by 40pc to 2.5mn metric tonnes (t) year to date May from a year earlier. The first quarter of the year posted the largest monthly increases from a year earlier, according to US Census.

In the post consumer scrap market, obsolete scrap flows into yards in the south and southeast are mostly flat from a year earlier — though some pockets reported a decrease in cut grades.

Year to date July, average southeast #1 HMS delivered to consumer prices have trended in tandem with the national average. Average southeast prices for #1 HMS trended higher than the national average for the first two months of the year. The national average overtook the southeast in March and fell below southeastern pricing until June when it surpassed southeastern prices again.

The export market is expected to play a large role in boosting domestic scrap prices. Prices for HMS 1/2 (80:20) cfr Turkey are up by $13.50/t in July from the beginning of 2017 while prices for Chinese billet cfr Turkey have risen by $48.70/t.

Still, market fundamentals might shift significantly with a definitive ruling in the Section 232 investigation.

"(Section) 232 is the wildcard," a market participant said. "(If) a strict 232 ruling restricting foreign steel is implemented, I would expect a pop."