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Strong Finish to 2016 for Ferrous Scrap Prices

Tighter domestic scrap inventories, elevated raw material prices for iron ore and coking coal, a series of domestic sheet price increases, reduced imports of steel into the U.S. and improving demand for U.S. ferrous scrap overseas have all contributed to a rebound in scrap prices in the fourth quarter of 2016.
Expectations for reduced regulatory burdens, increased infrastructure spending, rising protectionist measures against imports, and renewed support for U.S. manufacturing and the steel industry in the aftermath of the U.S. election have, for the time being at least, had an unmistakable impact on market sentiment, adding fuel to the price rally. The first week of December saw benchmark iron ore prices jump to 27-month highs above $80 per ton. Meanwhile, published sources including American Metal Market report domestic hot-rolled coil prices have increased to $560 per ton, with steel producers now pushing for $600 price levels. As scrap trading got underway in early December, published reports indicated ferrous scrap grades were up anywhere from $40 to $50 per ton, with AMM listing regional No. 1 HMS prices in the $240-$260 price range. Whether these gains will hold in the first quarter of 2017 is the next question. More detailed information on the supportive factors currently impacting the market are provided below.

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Overseas Demand for Ferrous Scrap Up 18% in October

According to the latest figures from the U.S. Census Bureau, U.S. exports of ferrous scrap (excluding stainless and alloy steel scrap) rose 18 percent month-on-month in October to more than 1.1 million metric tons, up from just under 945,000 mt in September. (Including the stainless and alloy scrap, exports were up about 14% to 1.24 million mt in October.) Big monthly gains were registered to Vietnam (+83,000 mt), India (+76,000 mt), Greece (+55,000 mt), Bangladesh (+30,000 mt) and (would you believe it?) our old friends in China (+40,000 mt to 74,263 mt). More modest increases also came from demand in Turkey (+12,680 mt to 281,585 mt) and Canada (+5,025 to 36,660 mt). While year-to-date shipments of 9.1 million metric tons were still down 6.7% as compared to the first 10 months of 2015, improving 4th quarter demand for scrap in key overseas markets, in spite of a strong dollar, has given a boost to domestic market conditions as well.

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Diminished U.S. Steel Imports in 2016

The American Iron and Steel Institute reports that “for the first eleven months of 2016 (including November SIMA permits and October final data), total and finished steel imports were 30,379,000 net tons and 24,322,000 net tons, down 16.5% and 17.3%, respectively, from the same period in 2015.” The association reports that, as compared to Jan-Nov 2015, year-to-date 2016 imports were down 22% from South Korea, down 15% from Turkey, and down 20% from Japan. Just how successful the steel trade cases have been in supporting the domestic steel industry continues to be a subject of debate given the below-par (if slightly improving) steel capacity utilization rates, but the AISI estimates would indicate year-to-date total steel imports are down by about 6 million net tons, a significant slice of the U.S. market.

World Steel Production Leveling Off

ustotalsteel_ferrousbeat_121316World crude steel production for the 65 countries reporting to the World Steel Association (worldsteel) during the first 10 months of 2016 was 1.33 billion metric tons, down 0.1% from Jan-Oct 2015. Among the major overseas destinations for U.S. ferrous scrap, year-to-date steel production was up 6.8% in India, up 4.6% in Turkey, and rose 0.8% in Mexico, while steel production in South Korea and Taiwan reportedly declined 1.6% and 0.7%, respectively, through October. But worldsteel also reports that for the first 10 months of 2016, China produced nearly 673 million metric tons of crude steel, up 0.7% as compared to the first 10 months of 2015. As part of China’s longstanding consolidation plans, Macquarie Research reports that “… the merger between Baosteel and Wuhan Iron and Steel was formally completed {this month}, creating China’s biggest steelmaker. The new company, called Baowu Steel Group, accounted for around 60mt of steel output in 2015.” Macquarie also reports that that “Chinese authorities are undertaking intensive environmental and illegal capacity inspections heading into the year-end.” While capacity reductions in China could help alleviate excess global steelmaking capacity, the proposed cutbacks have yet to make a sizeable dent in China’s steel production thus far.

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