Ferrous scrap demand in North America is expected to keep growing in 2025

Mexican ferrous scrap exports to the US surged in Q3, setting a record high in August, amid weaker domestic prices and an increase in US demand fueled by the growing reliance on scrap for decarbonization efforts.

Global decarbonization efforts for net-zero emissions by 2050 make electric arc furnaces using ferrous scrap optimal for greener steel production, with 2023 EAF CO2 emissions per ton of crude steel over three times lower than blast furnaces, according to World Steel Association data.

As a result, global steel production via EAF has increased, reaching 28.2% in 2023, as more steelmakers decommission blast furnace plants in favor of EAF technologies.

In North America, Mexico leads the transition producing 93.4% of its steel using EAF in 2023. In contrast, the United States produced only 68.3% of its steel with EAFs, while Canada produced 41.8%.

In the US and Canada, the demand for ferrous scrap is expected to continue to grow in the upcoming year. This increase will be driven by two key factors: the growing demand from steelmakers who are already utilizing EAFs and the transition from BFs to EAFs.

Conversely, with Mexico's current EAF adoption, only increases in steel production would directly boost scrap consumption.

Weakening Mexican scrap prices

Demand for finished steel has remained low throughout 2024, driven by a bearish market sentiment that has persisted since the abrupt price decline in Q1.

Although the rate of decline has slowed, both rebar and HRC prices have continued to decrease throughout the year.

On Nov. 8, rebar hit a two-year low at Peso 13,500/mt while HRC reached its lowest level since January 2023, priced at $963/mt on the same date, as assessed by Platts.

Consequently, ferrous scrap prices have also been on a decline since Platts started the daily Mexican ferrous scrap price assessment in September.

"Prices for all scrap grades have been trending downwards," a scrap dealer source said. "As I understand, mills are not selling finished products."

Several market participants agreed that steel and ferrous scrap market improvements might not occur until 2025, when Trump assumes power and geopolitical uncertainties diminish.

Mexican ferrous scrap exports to US surge

After steady increases in exports of Mexican ferrous scrap to the US, August 2024 set a record high with a total of 49,714 mt, almost doubling July 2024 volume, according to data Compiled by Platts from data released by the US Census Bureau.

Conversely, Mexican imports from the US have been decreasing as domestic demand has been muted driven by low finished steel demand throughout most of the year.

In addition to the ongoing domestic price decreases, the US dollar to Mexican peso exchange rate has intensified the price disparity between Mexico and other international markets.

The US dollar strengthened 19.35% against the Mexican Peso from Jan. 2 to Dec. 1, according to the Platts calculations based on third-party foreign exchange data at the São Paulo close.

The spread has benefited market players who focus on exports and negotiate in US dollars, prompting them to pay premium prices for scrap, outpacing the rest of the market.

According to a second scrap dealer source, these premiums have enabled certain companies to capture 30% of the busheling market in central Mexico.

Most exports were destined for the US, though several offers and trades came from the Pacific Coast, targeting into Asian markets.

"Export through shipping containers to Asia has rebounded after a 10-year hiatus," a third scrap dealer source said.

However, due to its proximity and increased ferrous scrap demand near the border, the US remains as the preferred export destination for Mexican scrap dealers.