US steel, aluminum prices face year-end inventory pressure
- Issue Time
US aluminum and steel prices retreated from record highs, as ferrous mill margins continued to lose steam with falling spot prices,
Lead times have also continued to decline and are now below the 10-year average.
Margins for electric-arc furnace, or EAF, mills in the Midwest are down 23% to 25% from the start of the fourth quarter, as HRC spot prices fell by $1,320/st during the same time period and prime and shredded scrap prices were unchanged during the December buy-week.
Shredded scrap prices remained in focus as export prices fell by almost 8% from the November highs and as the supply just barely nudged out demand in the Midwest. The Platts HRC-MW No. 1 busheling scrap spread continued to fall to $1,104.29/st and HRC-MW shredded scrap spread fell to $1,166.79/st. Margins are still up 65% and 84% from the start of 2021, respectively.
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 fell further to 4.61 on Dec. 13, down from 5.47 the week prior as 62% Fe iron ore prices continued to rebound, up by 36% from the November lows, as demand for medium grade fines improved.
The push towards decarbonization has increased the attractiveness of low emissions scrap and hot-briquetted iron.
HRS101 scrap prices have eased on lower bids from domestic blast furnace mills but have still increased 16% since the start of the year. It was last assessed at $545/mt though China recycled steel prices were higher on the week as mills are stocking ahead of the Lunar New Year holidays
The Black Sea pig iron export prices to Turkey HMS 80:20 scrap ratio moved up slightly to a 1.08:1 on the same day, just around November's average, as the Black Sea flat steel prices have been softening. Platts assessed the DBF New Jersey US East Coast-Aliaga Turkey 40kt Supramax freight rate was at $40.50/mt, down from the all-time index highs seen in late October. Pig iron prices in the region were supported by low export availability from CIS mills.
US pig iron imports to Midwest Busheling scrap delivered prices ticked down to 0.91:1 ratio, as the market in the US remains quiet and amid talks of slightly lower prices out of the CIS region.
Pig iron's carbon emissions via the blast furnace route are typically around 2.5 mt of carbon dioxide 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.
Aluminum scrap remains tight, demand strong
Much of the same held true for aluminum mills as their inventories are mostly covered through year-end and mills are looking to secure 2022 supply.
Market sources have said that Canadian producers, much of what is low carbon hydro-powered metal, have shifted some of their production back to P1020. Thus producers had some excess inventory to sell into year-end especially with the cash to three-month spread in backwardation on the London Metal Exchange at the time which has now moved back into contango.
US mill-grade scrap discounts to primary aluminum have remained relatively narrow compared to the start of the fourth quarter as LME three-month prices have rallied by 4.5% during the week, along with Midwest premium up 15%, as supply remained tight due to season stockpiling and transportation issues.
While certain higher grades of scrap saw continued strong demand in the week ending Dec. 17, other grades showed a different picture and lacked homes due to slower automotive demand, overstocked plants and labor shortages.
The spread between US Midwest Transaction (P1020) price and A380 secondary alloy rose, normally a sign that overall scrap supply is tight. The MWT-A380 spread ended the week at 4.95 cents on Dec. 16, tightening from 40.17 cents to start the fourth quarter.
But the surging A380 price has been attributed more to higher costs for other inputs and reduced output by secondary smelters, rather than to tight secondary scrap supply. Secondary smelters' appetite for scrap has not been strong.
The mill-grade mixed low-copper clips, or MLCCs, spread to MWT also widened slightly to 54.45 cents/lb on the same day, from the October high of 80.24 cents. Market sources also cited that scrap prices have held better than LME prices.
The spread between Platts P1020 US Midwest Transaction price and UBCs widened to 55.45 cents on Dec. 16, but off the October high of 75.92 cents, or 62.4% of MWT value, as the UBCs price moved back up to 92 cents and as three-month aluminum prices have found support but have fallen by 14% from the Oct. 15 highs, through Dec. 17.
Imports of UBCs continue to rise, up 41.4% year-to-date through October, according to the latest US Census Bureau data, to keep up with the shift of 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.