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Demand for aluminum, steel remains firm as scrap prices decline

Highlights

Margins continue to increase

Scrap consumption outlook positive

Primary aluminum and flat-rolled prices continued to rally during the week ended Sep. 10, as spreads to scrap input costs expanded.

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Hot-rolled coil prices held just below record highs and as US aluminum Midwest transaction prices hit fresh record highs, mill margins have continued to increase significantly throughout 2021.

Demand for these products and secondary alloys remain solid, even as automakers' semiconductor chip shortages and lack of staff at plants challenge nonferrous and ferrous market participants.

These were among the continuing trends this week in S&P Global Platts' new low-carbon metals spreads and ratios – a suite of eight price references launched Aug. 13 that allow users to compare low-carbon feedstocks with traditional higher-carbon inputs.

The new spreads and ratios – underpinned by existing Platts assessments in hot-rolled steel, pig iron, scrap, iron ore and aluminum from the US, China, Turkey and the Black Sea region – were launched in response to market participants' requests for tools to help quantify costs, manage risk, and support opportunities associated with the expansion of carbon-reduction strategies and increasing regulation.

Electric-arc furnace margins expand

US domestic mill offers remained firm as the arbitrage to imports continues to widen. Long lead times and solid demand from service centers looking to restock inventories have supported prices. Traders have tried to fill gaps in domestic supply shortages from planned outages through November. Buyers have been more willing to book imports as the spread between domestic HRC and imported has widened.

Margins for electric-arc furnace mills in the Midwest have continued to rise, as HRC spot prices continue to make new highs and prime scrap prices finally fall under pressure as mills cancel tons ahead of maintenance. Shredded scrap prices have been under pressure as exports have fallen, with Turkey as the major destination for US scrap exports. Shredded export prices are down around 9% from July. The Platts HRC-MW No. 1 busheling scrap spread was $1,419.50/st and HRC-MW shredded scrap spread also rose to $1,539.59/st. Margins have risen 113% and 140% from the start of 2021, respectively.

The Midwest busheling scrap to shredded scrap differential narrowed to $134.50/lt on Sep. 10, as Midwest prime scrap prices fell by $55/lt during the September buy-week, as lack of mill demand loosened supply. The melting rate of busheling has supported the differential, but as mills look into evolving technologies to better utilize obsolete scrap, market sources expect that spread to narrow further possibly during the next buy-week.

As planned mill outages extend out further than originally expected, prime scrap demand is expected to fall again slightly in October, with the increasing availability of material.

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

Strong EAF demand through 2021 saw new scrap tighten and become more valuable compared with iron ore, expanding the ratio.

The China import HRS101 scrap-to-iron ore price ratio rose to 4.44 on Sep. 10, up from 2.73 on July. 9, as 62% Fe iron ore prices have declined by 42.2% from July highs due to abundant supply and coking coal prices surging to record highs, increasing the attractiveness of low emissions scrap and hot-briquetted iron. HRS101 scrap prices increased 21.8% since the start of the year, averaging $580.29/mt CFR in August. China's domestic delivered HMS scrap prices also firmed in July and August.

Black Sea pig iron export prices to Turkey HMS scrap dipped to a 1.07:1 ratio on Sep. 10, below July's average. US pig iron imports to Midwest Busheling scrap delivered prices declined to a 0.89:1 ratio on the same day, as spot pig iron prices have again fallen faster than obsolete and prime grades. US mils remained quiet, awaiting prices to stabilize. Prices have also declined from Brazil to China.

Pig iron's carbon emissions via the blast furnace route are typically around 2.5 mt CO2 per mt 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.

Demand remains firm as supply loosens

The spread between Platts P1020 US Midwest Transaction price and UBCs widened to 71.38 cents/lb on Sep. 9, from 67.72 cents/lb on Sep. 2, or 56% of MWT value.

Imports of UBCs continue to rise, up almost 50% year to date through July, according to the latest US Census Bureau data, to keep up with the shift in 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, though class scrap from can making has displaced demand for used beverage cans.

Secondary smelter spreads have also widened even with firm A380 prices and the differential has strengthened as US P1020 all-in prices have hit record highs.

The MWT/A380 spread rose to 41.88 on Sep. 9, with aluminum prices breaking the $2,900/mt level on the London Metal Exchange. Demand for alloys remains solid even as some market sources cited some cancellations or orders being pushed back from their customers that are more tied to the automotive sector. That slack has been picked up by other customers looking to fulfill shortfalls from other orders because of competing smelters limiting production amid summer maintenance.

The mill-grade mixed low-copper clips, or MLCCs, spread to MWT has also increased to 73.38 cents/lb on Sep. 9, from around 48.056 cents/lb June 7. Market sources have also cited that the availability of scrap has continued to increase over the past few weeks as spreads have widened.