Reduced steel output dragging down scrap, sheet prices

The Ferrous Big Picture: World crude steel production for February, as reported by the World Steel Association, was figured at 84 million metric tons, 22% lower than February 2008. Total global steel output over the January-February period was placed at 170.3 million metric tons, down 23% vs. comparable 2008 data. At its peak, global output hit 120 million metric tons back in May, 2008.

China’s crude steel production for February was 40.4 million metric tons, an increase of 5% on February 2008, and is now up almost 2.5% for the first two months of 2009, while for the U.S., February output was down 54% year-on- year, and for the first two months, domestic cumulative production was off 53.5%. That’s not too surprising when you figure furnaces are running at a sub-50% utilization.

Citigroup’s latest forecast for the U.S. has 2009 production around the 70 million net-ton mark, down 30% from last year’s 100.7 million net tons.

Also not surprising is the fact that domestic steel imports are at record lows. February imports were lower by some 35% compared with January and are off 38% vs. February 2008. Chinese imports into the U.S. in February were off 39% compared with January.

If there is any good news to what the World Steel Association reported is that they also maintain that major destocking has run its course. We can only hope that’s true–as we’ve reported, independent researchers are all calling for lower production this year. Macquarie, for one, sees world crude steel output lower by 12%, which to others, looks optimistic.

As for product pricing in the U.S., Platts’ Midwest HRC (hot-rolled sheet in coil), f.o.b. reference price, is placed at $450- $470/net ton this week. That’s down another $10. A recent forecast by Merrill Lynch has HRC averaging $475 for all of 2009, with the domestic steel industry running at 55% utilization for the full year. Steel Business Briefing reckons that the average is “around $450/short ton.” This week’s survey of published sources by Steel Market Update placed the average closer to $460/ton.

A recent survey by our friends at Steel Market Update noted, however, that buyers are paying less for flat-rolled products in April than in March and that May expectations are for a continuation of this downward price trend. Gads!

On the scrap side of the equation, latest indications on ferrous scrap has No.1 HMS (heavy melt scrap) at $157.50/gross ton, unchanged from a week ago, according to Scrap Price Bulletin’s composite price. HMS is down about $27 from last month, and more than $190/ton lower than last year at this time. Shredded scrap is also unchanged this week at $180, Midwest delivered, per Platts.

And for the month of March, RMDAS placed its No.1 HMS national average at $173, with shredded at $201 and its No.1 bushelings & bundles reference price at $208/ton. World Steel Dynamics latest has HMS @ $161, shredded @ $186, and No.1 bushelings at $185/gross ton. Looking ahead, KeyBanc sees “…no positive catalysts emerging in the next couple of months that would prevent scrap from retracing to November lows in the $150-$175/gross ton range.” That ain’t good (at least not for the scrap dealers)!