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Pandemic subsides, recession looms for US scrap metal market in H2

US scrap suppliers face a very different economic landscape in the second half, with extreme price volatility resulting from Russia’s invasion of Ukraine giving way to an uncertain macroeconomic outlook for the steel industry.

US domestic scrap metal prices jumped one notch above their previous all-time high of $600/liter on a Midwest delivered basis from July 2008, holding at $610/liter for much of March and April 2022 before lowering to the most recent valuation of $480/litre on June 27.
Russia’s invasion of neighboring Ukraine in late February eliminated the two largest suppliers of pig iron exports to U.S. electric arc furnace operators, sparking a surge in demand for domestic scrap metal as an alternative raw material. But American mini-mills have since found new suppliers or made adjustments to use less pig iron in steel production.

Steelmakers 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 stifle inflation . Further rate hikes could follow in mid-July and later this year, possibly tipping the country’s economy into recession while raising the cost of borrowing.

“The ‘R-word’ has come into play over the past few weeks,” Bret Biggers, senior economist at the Institute for Scrap Recycling Industries, said at the trade association’s Gulf Coast convention in New York. -Orleans on June 23. talk about a 12-month recession. No one knows how long that will be, but as the Fed raises rates, it becomes harder to fund trading.

Other aspects of the scrap metal business are getting easier as the industry moves away from the worst effects of the coronavirus pandemic. Supply chain issues are finally beginning to resolve themselves in parts of the United States, which somewhat improves the transportation options available to scrap metal dealers.

“We are starting to see some improvements. For one price, you can get a truck or you can get a ship,” 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 triple and still no wagons. It takes an element of control away from your business.

The scrap supply and demand landscape will continue to evolve in the last six months of 2022. Steel Dynamics will continue to ramp up production at its mini-plant in Sinton, Texas, toward nameplate capacity of 3 million t/yr, which is large enough to alter the scrap metal flow in Texas and the wider Gulf Coast region.

“The Gulf is not a prime producing region,” Broom said. “It will also change from a region of long products to a region of sheet metal production. This means that premium grade scrap will be more in demand, while secondary grades will have to find another niche in the export market.
Source: Platts