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Commodities 2021: US ferrous scrap market 2021 outlook optimistic following uncertain 2020


Despite coronavirus effects, 2020 ends on strong note

Near-term strength could sustain through Q1 2021

New demand dynamics could support scrap in long term

  • Author
  • Joe Eckelman
  • Editor
  • Debiprasad Nayak
  • Commodity
  • Metals

Pittsburgh — Despite rampant uncertainty in 2020 stemming from the Black Swan effects of the coronavirus pandemic, US ferrous scrap pricing finished the year strong, with market participants finding reason to be optimistic heading into the new year.

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While market conditions were challenged early in the year, the final month of 2020 brought the largest December scrap price increases on record, and the outlook for January remains bullish, with US hot-rolled coil prices surpassing $1,000/st for the first time since 2008 in the final week of the year.

Additionally, export scrap prices continued to strengthen as they have through much of 2020. The S&P Global Platts HMS 80:20 Turkish import assessment rose from a low of $207.50/mt CFR Turkey in mid-March to $477.50/mt at the end of December, the highest level in more than nine years.

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The year 2020 started in typical fashion, with shredded scrap prices rising in January and correcting slightly in February. However, as the impacts of the coronavirus pandemic hit home in the US in mid-March, its implications began to effect the US ferrous market outlook. Once-bullish expectations for March buying, historically a good month to be long on scrap, faded as mill outages and manufacturing shutdowns loomed on the horizon.

Scrap prices declined through the summer, with shred falling nearly $50/lt in aggregate from April to August, as the effects of the pandemic reverberated throughout the steel supply chain. The market began to recover in September as mill demand returned, finished steel price expectations strengthened, and market conditions in the US began to recover.

Now, as 2020 draws to a close, scrap market participants find themselves smack in the middle one of the strongest markets in over a decade. Furthermore, domestic scrap demand is robust as mill lead times are extended trying to restock the steel supply chain.

Shifting demand landscape

In addition to the near-term headwinds, fundamental changes to the US ferrous scrap market landscape are on the horizon. New melting capacity additions domestically and increased appetite for ferrous scrap in foreign markets could support scrap prices in the long term.

Steel Dynamics Inc.'s planned 3 million st/year electric arc furnace (EAF) in Sinton, Texas is on track to begin melting in mid-2021. Big River Steel expanded its capacity in Osceola, Arkansas, during 2020 with a 1.65 million st/year EAF, and reportedly intends to build another EAF in Brownsville, Texas. North Star Bluescope also has plans to expand its capacity in Toledo, Ohio, by 850,000 st/year.

Nucor is expanding its Gallatin mill from 1.6 million st/year to 3 million st/year, and just started melting at its new 350,000 st/year rebar mini mill in Frostproof, Florida. The company is also planning a 1.2 million st/year plate mill in Brandenburg, Kentucky, set to begin production in 2022.

US Steel recently started up its new 1.6 million st/year Fairfield, Alabama, EAF, and ArcelorMittal is building a 1.5 million st/year EAF in Calvert, Alabama. These planned capacity additions collectively mean the steel production landscape in the southern US could look dramatically different in several years, as will raw material demand.

"EAF capacity expansion will be the biggest story," a scrap supplier said. "US Steel in the EAF game, how will the relationship between their blast furnaces and EAFs now operate? How will the Texas mill reverberate through the Southeast and then into the Midwest? The Frostproof one will be interesting as it might absorb that typical cargo of scrap exported from Tampa every few months."

With the increased demand, not only will the new capacity in the South compete with each other, but also with foreign markets looking to draw scrap from the US.

China is set to make its highly-anticipated return as a ferrous scrap importer after a two-year absence from the seaborne market. China will end its two-year ban on ferrous scrap imports and allow imports of recycled steel raw materials starting Jan. 1, 2021, the Ministry of Ecology and Environment announced Dec. 31.

China's return has made sellers optimistic about the new addition to global demand, while buyers highlight the fact that it will likely continue to push seaborne market prices to new highs.

"We are wave-riders," another US supplier said. "There is a lot of global demand right now, China's going to keep pushing this thing. We were going to have a nice little run domestically without China's influence. But I think China's and Turkish demand at this point is going to keep driving this thing."