Sit or sell: US scrap suppliers debate amid iron drop

US recyclers that ship ferrous scrap to exporters are debating whether to sit on certain material or continue selling into a falling market amid a sharp downturn in prices.

The ferrous scrap export market has witnessed precipitous declines the last two months, with Turkish deep-sea ferrous scrap import prices for HMS 1/2 80:20 cfr at around $230/t, down by more than $65/t, or 22pc, from early July to lows not seen since January 2017.

The decline in prices is forcing suppliers to evaluate strategies to hedge their exposure to future drops, slowing inbound scrap flows and reducing liquidity.

Suppliers surveyed by Argus are actively stacking certain items included car hulls, plate, and foundry-grade items like rotors and drums, while selling other grades to cover overhead costs.

"The strategy is you have to make sales, you can't hold forever. Basically, sell out and replenish at lower levels," an east coast supplier said. "Everyone is trying to keep no inventory, make sales and move scrap."

If the market remains in a long-term downturn, some suppliers said they will be forced to cut hours or shifts in the yard, while maintaining very lean inventories.

"We can't pile all grades, so we make a decision on what grades we ship and pile. We will probably pile cut grades and ship primes," one Philadelphia supplier said.

Some suppliers, though, have ceased shipping, counting on prices torecover, while others have been successful for the time being in hanging on through the drops.

"We have stopped shipping, [we're] taking material in at current price levels but traffic is slow at these levels," one New York supplier said.

One Albany supplier said, "Flow is good, but I am making a significant price drop...and it's going to affect flows I am sure."

US exporters have systematically lowered collection prices to maintain margins amid falling Turkish ferrous scrap import prices, reduced liquidity and rising freight rates.

Average east coast prices for shredder feed have fallen more than $76/gt from a March 2019 peak to $121/gt, the lowest level since October 2016.

The drop in prices since July has caused a significant contraction in suppliers' inbound flows with some reporting drops of at least 20pc from levels witnessed in recent months.

"Flows are lower for sure. When we dropped [scale prices] …that slowed it down. We're down at least 20pc," one New York supplier said.

Conditions on the west coast are no better, where slowing construction spending and oversupply issues in Asia have stymied steel demand and subsequently consumption of scrap and other steel feedstocks.

Adding to the downward pressure on ferrous prices and further squeezing the margins of major exporters has been rising bulk freight rates, as well as declines in key nonferrous scrap grades like twitch and zorba, both of which have reached near-historical lows.