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Market Update

A number of trade publications have reported in recent weeks that average domestic hot-rolled coil prices have dropped to around $580 per short ton despite attempts by at least three U.S. steel mills to raise list HRC prices by $30 per ton in the last week or so.

The weaker sheet price environment comes in spite of expected support from the 232 investigation and healthier U.S. steel production and capacity utilization rates. The American Iron and Steel Institute reports that “adjusted year-to-date {domestic raw steel} production through June 3, 2017 was 38,167,000 net tons, at a capability utilization rate of 74.4 percent. That is up 2.8 percent from the 37,117,000 net tons during the same period last year, when the capability utilization rate was 72.1 percent.”

On top of this year’s better domestic steel production figures, ferrous scrap processors benefitted from improved overseas demand for iron and steel scrap during the first four months of 2017. According to trade data from the Census Bureau, U.S. exports of ferrous scrap (excluding stainless steel and alloy steel scrap) during Jan-Apr ’17 rose nearly 28 percent by volume to approach 4 million metric tons (if you include the stainless and alloy steel scrap, exports were up 22 percent to 4.3 million tons year-to-date). The reported increase in YTD ferrous scrap shipments included an April spike in loadings for Turkey, which the Census data show rose from 105,194 metric tons in March to 314,772 mt in April. As a result, Jan-Apr exports to Turkey rose 3 percent as compared to the first four months of 2016 to more than 857,000 mt. Significant gains with Vietnam (+255,000 mt), China (+245,000 mt), Mexico (+245,000 mt), Taiwan (+173,000 mt), and Canada (+132,000 mt) more than offset weaker demand from India and Korea.

FerrousBeat2017Issue2Chart1

 As improved demand at home and abroad provided support for ferrous scrap prices, scrap flows improved significantly and particularly for obsolete grades, leading to a rebalancing of the market.As a result, prices have flattened out in recent months and early reports indicate we may be in for more of the same in June. Here’s the trend in No. 1 HMS, shredded, and No. 1 dealer bundle composite prices over the last year from Scrap Price Bulletin:

FerrousBeat2017Issue2Chart

Going forward, the correction in iron ore prices and Chinese steel prices, along with rising Chinese domestic generation, are all sources of concern. Although as Macquarie Research reports, with China’s 40 percent tax on ferrous scrap exports and increased emphasis on domestic production of steel from scrap, China is still unlikely to become a significant net exporter of ferrous scrap in the near future. From Macquarie: “In the 13th five-year plan on the scrap steel industry that was released at the end of 2016, raising of the scrap ratio in {Chinese} crude steel from less than 10.4 percent in 2015 to 20 percent by the end of 2020 was targeted, and in order to reach this target the plan says the scrap ratio in Chinese BOF’s should be raised to 15 percent, and the share of EAF should also be lifted… As the government forecasts China crude steel production of 750-800 million tons in 2020, a 20 percent EAF share means EAF steel production needs to more than double from 2015’s 60 million tons.”

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