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Ferrous market stutters after Spring freeze

Ferrous scrap prices in the US have recovered after the initial shock of the coronavirus pandemic but, with much lower demand, a much-needed boost hinges on the car industry, according to market observers.

More than 150 people participated in the latest virtual event on 14 May arranged by the Institute of Scrap Recycling Industries (ISRI) with a focus on the ferrous scrap market.

Brandi Harleaux, chief operations officer with South Post Oak Recycling in Houston, kicked off the hour-long discussion by talking about a climate of confusion across the US economy when the virus starting spreading. ‘Six to eight weeks ago, we didn’t know what direction we were all going. Information was changing day-by-day, hour-by-hour and minute-by-minute. People’s responses included shutting down completely while for some in manufacturing it was full steam ahead. There was a lot of variation.’

Auto is important

Blake Hurtik, from Argus Metal Pricing, began the main presentation with a look at ferrous scrap prices during March and April. Typical was No. 1 busheling (clean steel scrap), a key performance indicator for the US automotive and manufacturing industries.

In May 2019, the cost of a gross ton was around US$ 322, only slightly more than that achieved in February 2020. But by April prices had dived to US$ 275 before recovering to US$ 304 this month (May), sustained by much lower supply levels.

Hurtik said prices for light iron and whole cars effectively halved during March and April, although they had regained half of the decline in meeting recent mill demand. ‘One dealer said they were “buying blind” because no-one knew what was happening,’ he said.

Shredders were idle because of a lack of feedstock, he added, with June likely to be a key month for steel demand if a revived auto market drives supply. Almost all the major US car manufacturers are due to resume by 18 May, although most are expected to start with only one shift and no more than 60% production.

Hurtik said US steel capacity utilisation had plummeted by early May to the lowest level since 2009 and prices for hot-rolled coil had matched the fall.

Export uncertainty

Scrap exports also dived in March and April, with a pick-up in May, although bookings for Turkey in those months had benefitted from low freight rates, boosting margins. Hurtik said Asian markets showed a similar trend of ‘a sharp drop and a mild rise’.

India remained in lockdown but he forecast ‘a massive logistic headache’ when restrictions in that country were eased. Finally, he noted the four-month export ban imposed by the UEA, pointing out it was the biggest supplier to India and second biggest to Pakistan.

Global steel demand

Joe Pickard, IRSI’s chief economist, pointed out that China remained by some margin the word’s greatest steel producer with 53% of global output in Q1. However, Chinese production in that quarter had increased by only 1.2% whereas Turkey was up 9.6%.

The EU had suffered a sharp 10% decline in Q1 with North America down by 4% (although that figure included a 16% slump in Mexico.). ‘It’s clear Turkey could be the source of potential growth in ferrous scrap demand,’ he commented.

Pickard reinforced the view that the auto sector was key, showing current production in Latin America at a standstill in April while in China, the year-on-year monthly totals for February and March were each down more a million units, according to the China association of Automobile Manufacturers.

Finally, he noted that Oxford Economics had forecast a fall in US GDP in Q2 of a remarkable 35-40%.

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