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Demand for steel, aluminum firm as scrap starts to find support

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Demand for steel, aluminum firm as scrap starts to find support

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Primary spot markets quiet as offers remain firm

US prime/obsolete scrap grades spread narrows

Primary aluminum and flat-rolled steel prices were supported during the week ended Oct. 8, as input costs started to strengthen.

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US hot-rolled coil and aluminum Midwest transaction prices held just below record highs, mill margins have lost some steam but also remain near records, as challenging logistics have supported finished prices.

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. Global scrap grades have started to find support as demand has picked up for most grades.

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.

Mill margins mixed as EAFs get their number

US domestic HRC mill offers remained firm as mills assess the imports arbitrage situation, with prices in the South eased slightly due to competition from imports, which are up 94% year on year through August. Lead times have also eased but remain elevated and solid demand from service centers that have filled inventory gaps supported prices. Traders have tried to fill gaps in domestic supply shortages from planned outages through December. Buyers have been more willing to book imports as the spread between domestic HRC and imported has widened but will look to push those tons in Q1 2022 instead of booking into year-end.

Margins for electric-arc furnace mills in the Midwest were mixed this week, as HRC spot prices dipped slightly from record highs and prime scrap prices fell under continued pressure as the mill buy saw some prime tons canceled due to outages. Shredded scrap prices remained firm as dealers have been less willing to part with tons at export prices and as the market is starting to tighten in the Midwest. Shredded prices were up $4.50/lt in the Midwest during the buy week. The Platts HRC-MW No. 1 busheling scrap spread was $1,432.14/st and HRC-MW shredded scrap spread fell to $1,534.82/st. Margins have risen 115% and 139% from the start of 2021, respectively.

The Midwest busheling scrap to shredded scrap differential narrowed to $115/lt on Oct. 8, as regional prime scrap prices fell by $15/lt during the October buy-week, as EAF mills got their number, especially in the South, while prime scrap buying was seen by integrated mills for the first time in a decade, paying a higher rate in Ohio. The melting rate of busheling has supported the differential, but as mills look into evolving technologies to better utilize obsolete scrap, market sources expected the spread to contract during the buy-week.

As planned mill outages extend out further than originally expected, prime scrap demand was expected to fall in October but the market still remains fairly tight as it is hard to move tons from one region to another due to challenging logistics.

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 dipped to 4.79 on Oct. 8, up from 2.73 on July. 9, as 62% Fe iron ore prices have bounced back slightly but the lows but are still down by 44% from July highs due to abundant supply and coking coal prices surging to record highs, and the push towards decarbonization has increased the attractiveness of low emissions scrap and hot-briquetted iron. HRS101 scrap prices increased 27% since the start of the year, last assessed at $599/mt and China's domestic delivered HMS scrap prices also firmed in September, as blast furnace steelmakers rose bids.

Black Sea pig iron export prices to Turkey HMS scrap dipped to a 1.07:1 ratio on the same day, below September's average, as demand for scrap has been increasing in Europe and India as DRI has gotten more expensive due to the shortage of coal. US pig iron imports to Midwest Busheling scrap delivered prices ticked up to 0.90:1 ratio, as US mils remained quiet as it is very challenging to get barges upriver from Southern ports. The Atlantic market has been dominated as of recent by Chinese steelmakers looking to book tons from Russia and Brazil.

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.

Supply chain disruptions as demand remains firm

The spread between Platts P1020 US Midwest Transaction price and UBCs narrowed to 68.22 cents/lb on Oct. 7, from 71.97 cents/lb on Sept. 23, or 59.2% of MWT value, as the UBCs price moved higher to 99 cents/lb.

Imports of UBCs continue to rise, up 45% year to date through August, 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 narrowed, with firm A380 prices and rising magnesium and silicon prices supporting alloy pricing as supply chain disruptions will affect every from cansheet to autosheet and 6xxx series billet. The differential has eased even as US P1020 all-in prices sit just below hit record highs. Aluminum flat price has been supported by Chinese power curbs cutting production and the push towards decarbonization and low carbon units.

The MWT/A380 spread dipped to 40.72 on Oct. 7, as demand for alloys remains solid even as some market sources cited cancellations or orders being pushed back from customers more tied to the automotive sector. That slack has been picked up by demand from other sectors, labor shortages and input costs.

The mill-grade mixed low-copper clips, or MLCCs, spread to MWT has also increased to 71.22 cents/lb on the same day, from 50.493 cents/lb to start the third quarter. Market sources have also cited that the availability of scrap has continued to increase over the past few weeks as spreads have widened.