February showing promise in 2020
For the first time in eight months, scrap steel prices increased nationally in January by 0.74 percent. This month, the national price of scrap steel is now a little over $144, a more than eight dollar increase staying on par with industry experts’ prediction that scrap prices will slowly recover in 2020. Looking year-over-year, the market has fallen just under 20 percent as scrap steel on average carried $34 more in value in February 2019 than it does now one year later.
In regard to regional price change, it is important to note that all five U.S. regions’ average prices increased. Increases in Zones 1, 2, 4, and 5 were as large as one or seven dollars. Zone 3 (West) however, increased by almost 21 percent, or 29 dollars, the largest price increase that Zone 3 has had in exactly two years.
How the Coronavirus Outbreak Is Affecting the Global Steel Market
With the outbreak of the coronavirus originating in Wuhan affecting more than 17,000 Chinese people, industry experts are expecting to face a battered global steel market for the foreseeable future. Some believe that market participants have not even ruled out the possibility of closing their mills and applying for a force majeure certificate, a document that legally forgives a company that cannot fulfill a contract due to unforeseeable circumstances. As of this morning, no mills have informed the China Council for the Promotion of International Trade that they are anticipating any delivery delays. In fact, it’s likely that Chinese mills may take advantage of the force majeure certificate while domestic prices still fall, so they won’t have to undersell.
But how exactly has this virus affected the actual process of producing steel? In order to ensure that transport and human movements are reduced to contain the virus from spreading, four major Chinese provinces have already committed to cut total production by 25 percent. Their customers have also been asked to adjust their procurement schedules accordingly. Reducing production by these four provinces alone means a loss of more than 55 thousand metric tons of steel per day.
At the moment, there is no exact date when business activity in China will fully resume. Twenty four provinces have delayed the resumption of business activities by an additional seven days. Their new goal is to resume Monday, February 10th. For now, market participants outside of China can buy parts from their domestic markets or other sources, however, keep an eye out for lower transaction prices due to mounting inventory levels and delayed consumption potentially starting as soon as next week.