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Steelmakers face soaring scrap prices as US aluminum supply remains tight


US aluminum demand remains strong

Ferrous scrap increases spark mill increases

  • Author
  • Nick Ruggiero
  • Editor
  • Richard Rubin
  • Commodity
  • Electric Power Energy Transition Metals

US domestic HRC mill spreads managed to gain some ground on March 18, even with soaring scrap prices during the March buy week. But service centers that were in the spot market were only buying to fill gaps in inventories to meet demand.

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The HRC spot market again saw tradable values increasing as mills have raised their prices at the mill, ranging from $1,300-$1,400/st for April production with offers ticking up with the escalation of the Russia-Ukraine conflict affecting input costs and capping imports giving domestics mills a stronger hand again.

Domestic prices were impacted by the import arbitrage situation and have been under strong competition but with price volatility globally the arb has closed and some planned import shipments to the US have been canceled

Lead times have also continued to hold below the 10-year average.

Margins for electric-arc furnace mills in the Midwest have trended down from the start of 2022, as HRC spot prices fell by $200/st during the same time period, as prime and shredded scrap prices both rose by triple digits during the scrap buy week with skyrocketing pig iron prices due to the supply from Russia/Ukraine being cut off and global scrap demand has been improving with the push to decarbonize.

Both busheling and shredded scrap prices were in focus as export prices rose by 43.4% from the start of the year. The Platts HRC-MW No. 1 busheling scrap spread bounced back to $670.54/st and HRC-MW shredded scrap spread rose to $755.36/st. Margins are still down by 30.5% and 26.4% from the start of 2021, respectively.

As the market eyes growth in future scrap consumption from EAF capacity expansions and the push to decarbonize and utilize more scrap in basic oxygen furnaces, demand for flat-rolled steel has continued to outpace supply, and prices have held firm in the Midwest.

Strong EAF demand through 2021 saw new scrap tighten and become more valuable compared with iron ore, due to its lower usage of energy and carbon footprint properties, expanding the ratio.

The China import HRS101 scrap-to-iron ore price ratio increased during the week to 4.22 on March 18, up slightly from 4.14 to start the week prior as 62% Fe iron ore prices continued to push higher as import losses persisted on certain products but have narrowed creating some buying interest. Prices are up by 73.6% from the November lows as China steel margins remain poor.

The push toward decarbonization has increased the attractiveness of low emissions scrap and hot-briquetted iron.

HRS101 scrap prices have fallen recently due to Japanese Yen weakness but buying interest from South Korea has supported FOB prices, though still up 22.7% from the start of the year. It was last assessed at $638/mt but mills expressed concerns around COVID-related disruptions.

Supply crunch sends scrap prices higher

Black Sea pig iron export prices to Turkey HMS 80:20 scrap ratio was also higher at 1.3:1 on the same day, just above the February average, as Black Sea pig iron prices extended gains to levels not seen since August 2008, without Ukraine's monthly pig iron exports of around 250,000 mt the market has been facing tight global supply. Platts assessed the DBF New Jersey US East Coast-Aliaga, Turkey, 40kt Supramax freight rate also continued to move up to $41.50/mt.

US pig iron imports to Midwest Busheling scrap delivered prices ticked up to 1.46:1 ratio, as the new order prices have set new record highs amid the supply disruption from Ukraine, with prices increasing by more than 80% since the Russian invasion. Mills have looked to Brazil buying as much as they can find.

Pig iron's carbon emissions via the blast furnace route are typically around 2.5 mt of carbon dioxide per metric ton of hot metal on a Scope 1, 2, basis adjusted for yield, including iron ore sintering and met coke emissions.

Utilizing higher grades of recycled steel scrap in larger quantities can help steelmakers and users cut product emissions, helping benchmark toward broader industry targets.

Spreads narrow on pullback in flat price

US mill-grade aluminum scrap discounts to primary aluminum narrowed during the week as the London Metal Exchange's three-month prices have retreated by 17% from the March 7 high but still well above Nov. 5, 2021 low, along with Midwest premium at an all-time high, up 61.4% from its low Dec. 2, as supply remains tight and traders look to cover shorts to meet demand. Increased transportation costs due to rising fuel prices have just added to the fire.

While certain higher grades of scrap saw continued strong demand, other grades showed a different picture and lacked homes due to slower automotive demand, overstocked plants and labor shortages. Some grades such as old sheet, used in secondary applications, have started to see demand increases.

The spread between the US Midwest Transaction (P1020) price and A380 secondary also narrowed as primary aluminum prices on the LME pulled back. The MWT-A380 spread ended the week at 27.84 cents March 17, narrowing from 58.62 cents at the start of March.

But the surging A380 price has been attributed more to higher costs for other inputs and reduced output by secondary smelters, rather than to tight secondary scrap supply. Higher freight and fuel costs have pushed Platts A380 price to a record high of $1.60-$1.62/lb.

The mill-grade mixed low-copper clips, or MLCCs, spread to MWT were slightly tighter on the week at 65.34 cents/lb on the same day, but off the October high of 80.24 cents. Scrap prices have held their value given the run-up in flat price and demand of secondary products.

The spread between Platts P1020 US Midwest Transaction price and UBCs was 55.84 cents March 17, or 68.4% of MWT value, off the October high of 75.92 cents as the UBCs price moved back up to 1.32 to 1.34 cents, just below the all-time high and as three-month aluminum prices have found support and less domestic scrap was available.

Imports of UBCs have continued to rise, up 3.96% in January 2022 year on year, according to the latest US Census Bureau data, as the tightness in UBCs has had cansheet producers out looking for more primary aluminum, to keep up with the shift in usage of more beverages to aluminum cans, such as craft beers, energy drinks and seltzers, and the rising percentage of recycled material used to make each can.