Tight Supply of Scrap will dictate U.S. scrap market in July

Tight Supply of Scrap will dictate U.S. scrap market in July

U.S. ferrous-scrap prices will be unchanged or more likely rise by $10-$20 per gross ton in July, industry executives are forecasting. The key factor likely to push up prices is the tight supply of both prime and obsolete scrap.

Nucor and Turkish mills were big buyers of scrap in June (“Nucor Needs Scrap and Pig Iron,”, June 14, 2011). The Turks have pretty much pulled out of the U.S. export market at present, since Ramadan (the evening of 31 July to the evening of 30 August) will greatly diminish industrial activity in Turkey in August. But the heavy buying by Turkish mills of U.S. heavy melt, shredded scrap, and 5-foot plate and structural in May and June drained the U.S. supply of obsolete scrap.

Nucor, however, remains hungry for both scrap and pig iron. The steelmaker is buying an estimated 50,000 tons of prime scrap from EMR (European Metal Recycling) of England for delivery to the U.S. in August, brokers report. “The deal means that Nucor isn’t able to buy enough prime scrap in the U.S.,” said one broker.

At the Steel Success Strategies conference in New York City the week of 20 June, Nucor bought 63,000 metric tons (tonnes) of pig iron from Brazil for delivery to the port of Charleston, S.C., at $545 per tonne loaded onto the barge; Nucor’s Berkeley County, S.C., flat-rolled mill will melt most or all of the pig.

Also, Severstal’s Columbus, Miss., mill is buying pig iron from Russia’s Tulachermet. Tula is shipping 30,000-40,000 tonnes of pig to the U.S. Some of that will go to foundries at $556/tonne loaded onto the barge; and the rest will go to Severstal Columbus at $552-$553 loaded onto the barge in Mobile, Ala., brokers report. The vessels of pig to Nucor at Charleston and to Severstal Columbus and the foundries will be shipped in August for delivery in late August or early September.

“Nucor is still looking for more pig iron” beyond that purchase, said one broker. In late June, brokers from David J. Joseph Co., Nucor’s scrap subsidiary, were offering scrap to mills (besides Nucor) at prices of up $20 from earlier June levels, one broker reports.
On Wednesday, June 29th, Gallatin plans to buy 30,000 tonnes of pig iron from either Russia or Brazil. It wants to pay $545/tonne loaded onto the barge in New Orleans, brokers report. Earlier in June, Gallatin ordered up to 30,000 tonnes of Venezuelan HBI at $470-$475/tonne (, June 14th).

In a change from previous months, Venezuelan HBI is now available for shipment to the U.S. Through their brokers, the Venezuelans are asking for $470/tonne loaded onto the barge, but their prospective American customers are holding out for $450.
HBI typically sells at about the same price level as shredded scrap, brokers report. HBI contains 6-8-percent gangue, which means that electric furnaces must expend 6-8 percent of their electricity to melt the gangue. Pig iron and ferrous scrap, by contrast, have virtually no gangue. Pig iron contains 94 percent iron; 4-5 percent carbon; and some low-residual elements, says one broker. The gangue in HBI comes from the binder–the “molasses”–that holds the metallic together.

Dealers and brokers expect Timken–traditionally the first mill to buy scrap–to buy scrap sometime between June 28th and June 30th, before the three-day Fourth of July weekend.

“Next week should be hot,” said one broker about the flurry of buying of pig and scrap he expects during the week of 5 July. He and other brokers expect Nucor to buy more pig iron then.

The strength of the August market will depend partly on whether the Turkish mills resume exporting U.S. obsolete scrap for delivery to Turkey in September, after Ramadan ends. If not, “July could be the high-water mark of the year for prices,” said one Ohio broker.

The U.S. steel-industry capacity-utilization rate inched up from 75.3 percent (in the week ending June 11th) to 76.0 percent in the week ending June 18th, reports the American Iron and Steel Institute. Two other mills are ramping up production, however; it’s possible that the additional capacity could reduce the capacity-utilization rate.

In May, RG Steel, the new owner of the Sparrows Point, Md., mill, produced the first steel at the plant (near Baltimore) in nine months. And ThyssenKrupp AG is ramping up production at its new stainless-steel plant in Calvert, Ala.

By Bryan Berry

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