Viewpoint: US ferrous exporters face 2020 challenges

US scrap exporters will focus on boosting ferrous volumes in 2020 to offset impacts from structural changes in the global nonferrous scrap market.

US ferrous scrap exporters faced a challenging year in 2019 with prices in key importer Turkey reaching three-year lows late in the year.

Bulk ferrous scrap export prices from the US east coast have only begun to rebound at the end of 2019, driven by a prolonged period of strong deep-sea scrap restocking in October and November by Turkish steelmakers.

Turkish ferrous scrap import prices HMS 1/2 80:20 reached multi-month highs on 23 December at $303/t cfr following a sale from a US supplier.

For Turkish scrap import prices to gain any further momentum Turkish steelmakers will need to capture higher finished steel prices to maintain an optimum spread between scrap costs and steel sales.

An expected increase in US domestic ferrous scrap prices in January, paired with limited supply and seasonally slower scrap flows could help add additional upside to US bulk ferrous scrap prices over the next few months.

Uncertainty to drag on 1Q nonferrous exports

US shredders found no reprieve on the nonferrous side of the business either, with average US export prices for 99/3 quality, commodity-grade zorba fas east and west coast plummeting to the lowest level reached in Argus price history.

Structural changes to China's scrap import policy requires scrap import volumes to be limited by a strict quarterly quota and license system. Approved quota volumes have fallen drastically short of historical import volumes, which has severely affected trade flows and created higher scrap inventories in North America and Europe.

Faced with greater limitations on nonferrous scrap specifications exporters have been forced to invest heavily in scrap processing equipment to enhance zorba and low-grade scrap separation.

Exporters will remain in limbo most likely through the first quarter of 2020 as China's plan to reclassify high-grade non-ferrous scrap metal as a raw material might not be implemented until March-June next year.

As a result, nonferrous scrap export volumes are likely to continue to lag, prompting exporters to shift greater focus on boosting ferrous shipments to help offset the difference.

EAF capacity growth supports scrap demand

Lingering trade tensions between the US and China stifled global growth, investment and underlying steel demand through 2019.

Worldwide finished steel consumption is expected to grow at a smaller rate in 2020 than in 2019, according to the World Steel Association. The association expects finished steel demand in Asia and Oceania to increase by nearly 2pc to 1.25bn t from 2019 consumption levels, after growing by around 6pc in 2019 from the prior year.

Meanwhile, growth in electric arc furnace steelmaking capacity growth throughout the US and southeast Asia is expected to continue to provide underlying support to scrap consumption in the coming year.

Rising electric arc furnace capacity and tighter emission standards in China also provide long-term opportunity for higher ferrous scrap consumption. Although China allowed fewer than 200t of ferrous scrap imports in December, the China Association of Scrap Metal anticipated a 40mn t shortage of ferrous scrap supplies in 2020.

Asia rebound to drive container demand

West coast market participants hold a more bullish outlook for early 2020 ferrous exports.

Containerized ferrous scrap prices on the west coast have steadily risen after reaching a bottom in October 2019.

Shrinking scrap supplies from west coast suppliers, coupled with a resurgence in the Turkish market at the end of September, contributed to the upward trajectory of west coast ferrous exports. Since the first week of October, the market rebounded by more than $40/t by 20 December to $252/t fas Los Angeles for HMS 1/2 80:20. Short term bullishness on containerized scrap pricing is underpinned by continued scrap tightness through the winter months. But the Chinese lunar new year holiday, which in 2020 will take place during the third and fourth weeks of January, could impede any further prices increases early in the year.

By Brad MacAulay and Will Ehrhardt