Scrap premiums in southern US highlight shift

Spreads between US domestic ferrous scrap prices in the south and north are the widest in over a year, highlighting a broader shift as southern US electric arc steelmaking capacity grows.

Average scrap prices in the US south outpaced prices in the US Midwest across all scrap grades in November. Prices in the US south include: Birmingham, Alabama; North and South Carolina; and the northeast region of Arkansas. Prices in the US Midwest include: Chicago, Illinois; Detroit, Michigan; St Louis, Missouri; Cincinnati, Ohio; and Indianapolis, Indiana.

Domestic mills in the south paid a $25/gt premium for #1 busheling, a $29/gt premium for #1 HMS and a $18/gt premium in November compared to delivered prices paid in the north, according to Argus assessments.

Premiums for the all three scrap grades surged to or beyond one-year highs in November and mark a wider trend in the differentials between both regions over the second half of 2019 as southern demand outpaces the north.

Aside from a one-month contraction in the premium for shredded scrap in September, #1 busheling, #1 HMS and shredded scrap in the south have traded above prices in the north since June.

The swing aligns with shifts in US raw steel production across both regions in recent months.

The south's overall percentage of total US production surpassed 40pc in November compared to an average share of 37pc over the last three years, according to the American Iron and Steel Institute (AISI).

Similarly, the overall percentage of steel production held by a combination of the Midwest and Great Lakes regions has drifted lower since June, falling by nearly 2pc in November from a three-year average of 47pc.

AISI's raw steel production tonnage, which is estimated and compiled using weekly data provided by 50pc of domestic producers and monthly data for the remainder, for the Midwest and Great Lakes region between June and November increased by 2.8pc compared to the same period last year, while output in the south rose at a slower clip of 2.4pc in the same comparison.

The shifting landscape will likely become more exaggerated in the coming years as steelmakers such as Steel Dynamics (SDI), Nucor, US Steel, Big River Steel and North Star Bluescope invest heavily in expansions in the wake of the US imposing a 25pc tariff on steel imports in March 2018.

The south is poised to see accelerated demand for raw materials.

By 2022, Missouri, Florida, Alabama, Texas, Arkansas and Kentucky could see more than 9.75mn t/yr of steelmaking capacity brought online through various rebar, tubular, sheet and plate mill projects.

With access to US Gulf and various riverways, the south will continue to be positioned to consume from both domestic and offshore sources.

The northern US has so far only seen limited plans for electric arc furnace (EAF) expansion compared to the south with one of the most notable projects for the region North Star BlueScope's planned expansion of its Delta, Ohio, mill, which will add 850,000 st/yr in 2022.

Meanwhile, JSW's Mingo Junction, Ohio-based EAF reopened in December 2018, after the mill was shuttered in 2009. The mill produced 80,000st in the first quarter 2019, running at rates far below its 1.5mn st/yr capacity due to operational issues.

By Brad MacAulay and Will Ehrhardt