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Ferrous Market Update

China remains the focus of attention on the global commodities front and for good reason. For the time being at least, China continues to be the driver for overseas scrap metal demand, and not just for nonferrous metal.
Out of all destinations, mainland China has registered the largest year-on-year gain in demand for U.S. ferrous scrap in 2017. According to Census Bureau trade data, year-to-date U.S. exports of ferrous scrap (ex-stainless and alloy steel scrap) to China more than tripled to 430,707 metric tons during Jan-Jul 2017, a net gain of nearly 300,000 metric tons as compared to the first 7 months of 2016. Other ferrous scrap growth markets this year include Mexico, Vietnam, Bangladesh, Taiwan, Canada, Pakistan, and Ecuador:

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Higher iron ore prices, rising steel production, and a weaker dollar have all been widely cited as drivers of growth for ferrous scrap demand in China and globally this year. Of note, despite the weaker dollar (which makes imports into the U.S. relatively more expensive), U.S. imports of ferrous scrap have also been surging higher this year. Excluding stainless steel and alloy steel scrap, U.S. ferrous scrap imports are up nearly 27 percent by volume to 2.3 million metric tons through July. Not surprisingly, Canada remains the major source of ferrous scrap flows into the country, but according to Census Bureau data China is also sending (small quantities of) ferrous scrap to the U.S. Here's the trend in U.S. ferrous scrap imports this year:

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More recently, falling steel rebar and iron ore futures in China have been signaling that the Chinese commodities rally is running out of steam. Here’s the trend in steel rebar futures at the Shanghai Futures Exchange:

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The reversal in Chinese steel and raw material prices also has important implications for U.S. steel and ferrous scrap prices. American Metal Market is reporting their hot-rolled coil index dropped 1.9 percent to $608.20 per short ton this month while most published sources indicate that the expected gain in ferrous scrap tags in September did not materialize amid cooler scrap demand from the steel mills. Even so, U.S. steel production is still outpacing last year’s performance, which bodes well for scrap demand. The American Iron and Steel Institute reports year-to-date U.S. steel production (through September 23) increased 3.6 percent year-on-year to nearly 66.1 million net tons while the capacity utilization rate improved to 74.6 percent, up from 72.1 percent during the corresponding period last year. 

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