FEATURE: Pandemic fades, recession looms for H2 US ferrous scrap market

US ferrous scrap suppliers are facing a very different economic landscape in the second half of the year, as extreme price volatility stemming from Russia's invasion of Ukraine gives way to an uncertain macroeconomic outlook for the steel industry.

Domestic US shredded scrap prices climbed a notch above their previous all-time record of $600/lt on a delivered basis in the Midwest from July 2008, holding at $610/lt for much of March and April 2022 before subsiding to the most recent assessment at $480/lt on June 27.

Russia's invasion of neighboring Ukraine in late February took out the two largest suppliers of pig iron exports to US electric arc furnace operators, causing a rush in demand for domestic ferrous scrap as an alternate feedstock. But US mini-mills have since found new suppliers or made adjustments to use less pig iron in steel production.

Steel makers face a different set of challenges after the US Federal Reserve approved its biggest interest rate hike since 1994 of 0.75 basis points on June 15 in an effort to quell inflation. Further rate increases could follow in mid-July and later this year, possibly tipping the country's economy into recession while also raising the cost of borrowing.

"The 'R-word' has been coming into play over the last few weeks," Bret Biggers, senior economist at the Institute for Scrap Recycling Industries, said at the trade association's Gulf Coast Convention in New Orleans on June 23. "There is talk of a 12-month recession. No one knows how long it will be, but as the Fed raises rates it gets harder to finance trading."

Other aspects of the scrap trade are getting easier as the industry moves further away from the worst effects of the coronavirus pandemic. Supply chain issues are finally beginning unravel in parts of the US, providing some improvement to the transportation options available to scrap dealers.

"We are starting to see some improvements. For a price, you can get a truck or you can get a vessel," Bob Broom, vice president of trading at Houston-based Tri Coastal Trading, said as a panelist at the ISRI convention. "But for rail, you can ask to pay double or pay triple and still not get any rail cars. It takes an element of control away from your business."

The landscape of ferrous scrap supply and demand will continue changing in the last six months of 2022. Steel Dynamics will continue ramping up production at its Sinton, Texas, mini-mill towards the nameplate capacity of 3 million st/year, which is big enough to alter the flow of scrap in Texas and the wider Gulf Coast region.

"The Gulf is not a prime-grade producing region," Broom said. "It will also be moving from a long products region to a sheet-producing region. That means prime scrap will be in higher demand, while secondary grades will need to find another home in the export market."