US scrap market projection: More questions than answers
US scrap market prices may have trended upward during this month’s buy cycle, but the long-term state of the market remains uncertain.
For example, the current US unemployment rate spiked to roughly 14.7% in April, and some economists predict the unemployment rate will peak at 25%—a level that hasn’t been seen since the Great Depression.
And while many economists expect the US to experience a 6% decline in GDP this year, expectations for 2021 are largely mixed; some believe 2021 will bring a 6% recovery, while others are pegging a recovery of 4%. As such, the impact to the domestic steel industry, sources note, is still “to be determined.”
On one hand, automakers throughout the US have either started, or have plans to resume production. In addition to this being good news for the busheling scrap market, it also brings good news to the domestic flat rolled steel market. On the other hand, expectations for automotive demand are unclear. Some surveys show a majority of US consumers rethinking the value of owning a car compared to public transportation amid a pandemic, but other surveys say most buyers could likely prefer used cars.
Construction also remains a wildcard. Many experts believe that non-residential construction will be down both this and next year. As one SteelOrbis source put it, “no one is going to be rushing out to build strip malls or shopping centers when retailers are going out of business.” High unemployment rates are also expected to drag down residential construction demand.
As for the US steel market overall, domestic raw steel production remains at a low 53.7%. And while steel industry groups are lobbying Congress to pass an infrastructure bill as part of the next COVID-19 stimulus bill, even if it is passed, the effects won’t be felt for at least a year.
Based on uncertainty within end-use markets, and an energy pipe sector that’s essentially on life support due to the global oil price situation, demand for scrap is hardly robust. But sources say it's unlikely that current market fundamentals will prevent scrap prices from moving upward next month.
In fact, most SteelOrbis sources believe that domestic scrap prices could trend up $15-$20/gt ($15-$20/mt) during the June buy cycle.
“The energy pipe business is terrible, so there’s no need to delve into that,” a source said. “Rail business also isn’t great. On the other hand, military ordering is up, which is good, as is the fact that automakers are starting back up again.”
Another source agreed that the market is starting to fare better.
“Inflow is picking up and peddler business has started back up, which will certainly help with some things,” he added.
However, low capacity utilization rates remain a major obstacle for the market.
“The big question is when mills will get their melt programs moving again, and a lot of us don’t think that’s going to happen until closer to the end of Q3,” he continued. “For now, the entire market is floating on ‘to be determined’ based on a lot of things that none of us have any control over.”
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