Summary
Solid steel markets in the US have been catching the attention of overseas producers for some time. Now that imports are definitely hurting the bottom line of the US makers they are faced with a rebounding raw material market that will further pinch margins.
Analysis
Domestic scrap pricing has been on a downward slide that hit the bottom last month. As Mr. Marley correctly points out the Winter season is a slow period for ferrous scrap collection. A very robust export market has been taking scrap away from Eastern mills for several months. Markets in Turkey and Asia are strong and buying from the US is consistent.
Winter is obviously not unique to the US and similar effects are seen in Europe and Asia. Exports from Russia are down 30% this year mainly due to a healthy domestic steel business. Winter hits the upper Eastern ports particularly hard this time of year further reducing available supplies. This is not only affects Asia but also Black Sea buyers such as Turkey that have relied on Russian scrap.
In addition to the slow intake of scrap due to lower pricing and seasonal factors the export of scrap from non traditional locations has had a quiet but profound impact on the domestic market. In recent months several cargos of scrap have been collected from suppliers on the inland river system and loaded into ships in the Gulf. This move has further reduced available inventory and made a price correction inevitable.
Even with US capacity utilization at a low 79.60% this past week markets are poised for rebound. Both weather and slow in-flows will give steel mills cause to raise pricing. They must also compete with a very strong export market. Even with historically high freight costs export yards are still able to compete with their local mills.
Worldwide scrap prices are going up on this current turn of the market and the US has already bought their E ticket to ride along.
