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2019 likely to be volatile for US ferrous scrap market: panel

Chicago β€” This year will likely be a volatile one for the US ferrous scrap market, panelists said Friday at S&P Global Platts' Steel Markets North America conference in Chicago.

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"I think we are going to return to the era of volatility in scrap pricing -- and probably steel pricing as well -- and we think that will continue throughout the year and may increase in later parts of the year," Mitch Robertson, a partner at Ferrometrics, said.

The scrap oversupply situation in Turkey, a country heavily reliant on obsolete material exported from Europe and North America, will pressure US pricing, Jeremy Kirchin, the CEO of Scrap Metal Services, said.

"Due to the oversupply of steel being pushed into Europe that can no longer come into the US, that is driving the oversupply of scrap in Europe and Turkey. So the exports out of the US are dropping and having a varied impact on the obsolete grades," he said. "... We're faced now with a new challenge around the world, and unless things really start to change with growth in Europe, or changes to tariffs on imports, we expect to see challenging, subdued pricing in scrap."

Despite the challenges in Turkey, local producers continued to be interested in buying US scrap, Robertson said.

"From our conversations with producers, they have really gone out of their way to find new marketplaces outside of their traditional markets for long products," Robertson said.

However, lower Turkish pricing will likely have an impact on US scrap pricing as Turkish producers were expected to continue to experience margin compression, he added.

"The fact is, if Turkish scrap drops $40, then that will have an effect on the US price," Robertson said. "It may not happen overnight, but it will happen over a period of a couple of weeks and if it doesn't go back up, US buyers will have a much easier opportunity to buy scrap from exporters."

In the US market, if you look at the implications of new steel mill and direct reduced iron capacity coming online, it will create additional demand for scrap in the domestic market, Kirchin said. He said he estimates roughly 9 million to 11 million st/year of announced electric arc furnace capacity to come online.

High run rates at US mills, which are already above 80%, have put pressure on the availability of coastal scrap for domestic steel mills at times, Robertson said. As a result, mills will be required to be more price competitive to secure certain grades of scrap, he added.

"As more capacity comes online, we take the view right now that prime scrap will be under some pressure as we go throughout 2019," he said.

And while a cataclysmic downward shift in demand for scrap is not expected, signs of slow down are there, Roberston said.

"We do think there are cracks in the armor of underlying steel demand in some products, particularly hot-rolled coil. I don't know how that extends beyond this year, but we think with the recent price hikes that haven't really stuck on HRC, the mills are doing everything they can to get market share and fight for bookings in a market that has a lot of uncertainly."

-- Justine Coyne, justine.coyne@spglobal.com

-- Edited by Pankti Mehta, newsdesk@spglobal.com