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August uncertainty over US scrap trading

The recent resilience of the US ferrous scrap market will be tested by less favourable market conditions in August, according to a seasoned observer of regional trade in America.

George Adams, ceo of SA Recycling, writing in the latest Mirror from the Bureau of International Recycling, says the market has seen three consecutive months of price gains but he believes a growth in the supply of scrap and other seasonal factors are likely to ensure there will not be a fourth such rise.

‘Dealers now see a slight imbalance weighted towards too much scrap supply, especially in the non-sheet mill grades of HMS and turnings. Exports also appear to be unsupportive as more traditional summer weakness is exacerbating a well-supplied US and international scrap market. With export prices into Turkey and Asia currently weakening, dealers are feeling less confident about August trade.

‘The US scrap market has rarely seen four consecutive months of scrap price gains. While no imminent collapse is likely in the ferrous scrap markets, there is little doubt that mills will capitalise on current scrap supply strength and move prices lower in August. The bigger question will be how much downside exists and whether the continued strength in the overall steel markets, long lead times owing to supply chain constraints and overall positive economics will buoy the markets in September and October, which are traditionally stronger demand months. The test will again be supply-side driven based on international scrap availability.’

Adams believes the Covid-19 pandemic, still forcing shutdowns in countries such as Malaysia and Vietnam, continues to affect the international scrap trade but he remains optimistic.

‘While there may continue to be surprises, the US market should continue to be healthy in the near term. The continuing question is when the supply chain will finally catch up with demand, with the subsequent fall in new steel prices. While it is inevitable, so far it has been a difficult question to answer. When it does happen, look for markets to finally adjust lower to more sustainable levels, albeit possibly at higher-than-historical averages.’

Zain Nathani, vice-president of the BIR ferrous division, writes that ‘two very different stories are being told’ by the Indian steel industry. He notes that primary producers with captive iron ore mines and coal linkages are seeing record profits and stock prices, increased production and strong exports of hot rolled coil and other flat products.

On the other hand, secondary steel producers relying mostly on ferrous scrap to make rebar for the construction sector are yet to see such growth as demand for long products is still lagging in India. This is has resulted in ferrous scrap imports falling more than 20% year-on-year.

However, he adds, Pakistan and Bangladesh are continuing to show a healthy appetite for ferrous scrap imports given the strong steel demand in their countries. Their governments have announced infrastructure spending packages which are expected to keep steel demand firm.

‘Vessel space for bulk cargoes and container availability continue to be a concern for the recycling industry,’ he cautions. ‘Freight rates have risen even further and current challenges on the supply side of the logistics chain are expected to persist.’

Fellow ferrous board member Shane Mellor of Mellor Metals in the UK reports a disparity between prices in the domestic market and those obtainable by exporters.

‘UK scrap has continued to trade in pleasing volumes, although there are signs of the normal seasonal slowdown. Container availability issues, higher freight costs and a general shortage of lorry drivers within the UK are further affecting both the domestic and export transport infrastructure. There are also signs of higher inflation filtering through; how this is managed by world economies in the long term will be of concern to everyone.’

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