Ferrous – Hot-rolled coil prices are continuing to make gains in the U.S. with Midwest index prices at $678.20 per ton last week. AMM is reporting that domestic mills are continuing to make the push toward $700 per ton.
Reports from AMM were saying that Turkish scrap steel import prices have remained steady despite a new round of bookings and then later reported that prices jumped $19 higher with another deal. The new deal was on heavy melt which, along with other grades of obsolete scrap, have been seeing remarkable demand from overseas markets. With that now said, a new month of export statistics from the U.S. Census Bureau have been published. According to the Census Bureau trade figures, U.S. ferrous scrap (excluding stainless steel and alloy steel scrap) exports declined from 1.41 million metric tons in October to 1.11 million tons in November as weaker demand from Thailand, Vietnam, S. Korea, Bangladesh and Taiwan more than offset heavier loadings for Turkey (+76,000 mt to 307,000 mt in November).
The Wall Street Journal reports that U.S. steelmakers are expanding capacity despite the late 2018 drop in steel prices. As we can see with the early 2019 recovery in steel prices, concerns whether steel prices would stay low are seeing some relief that may sustain such a rally. According to the Journal’s reporting, “The build-out by Nucor Corp., Steel Dynamics, Inc. and a half-dozen other companies would add 16 million tons of steelmaking capacity in the U.S., an 18% increase over the 90 million tons produced here in 2017, before tariffs took effect.”
Nonferrous – LME Copper futures have been on a tear after a sharp late in the fourth quarter of 2018, trading as high as $6,289.50/mt last Thursday. Fastmarkets analysts see both the long-term and short term trends on copper pricing to be favorable. Some of the rebound in copper prices is attributed to reduce fear of the U.S.-China trade war escalating. The effect on scrap copper markets seems more ambiguous. The International Copper Study Group’s 2019 forecast project a refined copper deficit in 2019 with little change in the contribution to refined production from scrap.
Nickel prices have continued to climb higher recently with 3M futures on the LME and SHFE up over 15% on the year so far. LME 3-mo. nickel lost ground on Friday but traded as high as $13,350/mt on Wednesday. Eventually, this should translate into firmer stainless scrap prices but market participants are divided on the outlook for stainless going forward. After a disappointing year in 2018, lead and zinc prices may be gaining some traction but most market analysts are less bullish on the sister metals.
Paper and Plastic – Paper mills experienced increased merger and acquisition (M&A) activity during 2018. Despite the simmering trade war between the U.S. and China, RISI reports that about one third of the deals (both announced and completed) from last year involved Chinese and other Asian firms. There were 14 deals made that were collectively valued at $9.1 billion. While this activity may appear encouraging for more infrastructure investments down the road, it’s important to take a step back and look at the drivers for this behavior and figure out what the next steps may be as manufacturing has to also adapt to consumer behavior changes.
Due to trade policies creating fiber shortages, Chinese mills needed to find other avenues to supply the necessary feedstock for their operations. China is sitting on capital reserves due to its considerable trade surplus which can fund venture capital financing. Moving that capital outside of its borders is not congruent to their domestic development plans so this investment push is likely a stop-gap measure to ease industry adaptation. However, once the supply of pulp is on track for a balance, it will be important for foreign investments to consider expanding their new footprint or selling off. In the coming years, they may be competing with U.S. mills who have recently expanded their conversion capacity through acquisitions and brownfield projects.
For more information, please contact ISRI Research Analyst Bernie Lee.
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