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US domestic HRC mill spreads fell under continued pressure during the week ended Feb. 18 for March production as inventories remained high, especially at the ports, but spot market bid/offers have tightened at lower levels from previous weeks. Service centers looked to draw on higher-priced inventories and contracted tonnage given the steep decline in spot prices.
Domestic prices were impacted by the import arbitrage situation and have been under strong competition.
Lead times have also continued to hold below the 10-year average.
Margins for electric arc furnace mills in the Midwest are down 40% from the start of 2022, as HRC spot prices fell by $460/st during the same time period, as prime and shredded scrap prices are both expected to rise during the March buy-week, as exports have been increasing and global scrap demand has been improving with the push to decarbonize.
Shredded scrap prices remained in focus as export prices rose by almost 12% from the start of the year. The Platts HRC-MW No. 1 busheling scrap spread continued to fall to $577.95/st and HRC-MW shredded scrap spread fell to $615.89/st. Margins are down by 13% and 4% 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 increased during the week to 4.5 on Feb. 18, up from 3.86 to start the week prior as 62% Fe iron ore prices retreated on limited buying interest as customers were on the sidelines awaiting guidance, as prices are still up by 53% from the November lows, as the market expects production to resume after the Winter Olympics.
The push toward decarbonization has increased the attractiveness of low emissions scrap and hot-briquetted iron.
HRS101 scrap prices have risen recently due to competition between South Korean buyers, up 16% from the start of the year. It was last assessed at $601/mt despite a weaker marker domestically in China.
Scrap prices supported
Black Sea pig iron export prices to Turkey HMS 80:20 scrap ratio were steady at 1.1:1 on the same day, just above the January/December average, as Black Sea pig iron prices extended gains to a six-month high with resistance from US mills. Platts assessed the DBF New Jersey US East Coast-Aliaga Turkey 40kt Supramax freight rate at $29.50/mt, down from the all-time index highs seen in late October.
US pig iron imports to Midwest Busheling scrap delivered prices ticked up to 1.09:1 ratio, as the new order prices have increased given Brazilian and Black Sea markets improvements.
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.
Widening spreads could lead to increased buying power
US mill-grade scrap discounts to primary aluminum have continued to widen as the London Metal Exchange’s three-month prices have rebounded by 31% from the Nov. 5 low., along with Midwest premium at an all-time high, up 50% from its low Dec. 2, as supply remains tight and traders look to cover shorts to meet demand. Steep backwardations on the LME have provided less incentive to carry inventories.
While certain higher grades of scrap saw continued strong demand, other grades showed a different picture and lacked homes due to slower automotive demand, overstocked plants and labor shortages.
The spread between the US Midwest Transaction (P1020) price and A380 secondary continued to widen as primary aluminum prices on the LME continue to rebound. The MWT-A380 spread ended the week at 40.41 cents Feb. 17, widening from 15.49 cents at the year’s start.
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 were slightly tighter on the week at 70.41cents/lb on the same day, but off the October high of 80.24 cents. Scrap prices have held their value given the run-up in flat price.
The spread between Platts P1020 US Midwest Transaction price and UBCs was 62.41 cents Feb. 17, but off the October high of 75.92 cents, or 66.52% of MWT value, as the UBCs price moved back up to 1.123 to 1.25 cents, at an all-time high and as three-month aluminum prices have found support and less domestic scrap was available.
Imports of UBCs have continued to rise, up 37.02% for full-year 2021, according to the latest US Census Bureau data, as the tightness in UBCs has had cansheet producers out looking for more primary aluminum, to keep up with the shift in usage 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.