WSEM World Steel Exchange Marketing

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1 WSEM World Steel Exchange Marketing Mike Marley s Shredded Power #95 Regional factors drive ferrous scrap price changes. All but the fluff Commentary: Ferrous scrap prices are up, down and unchanged this month with the largest upward price moves dictated by regional shortages or threats of shortages. There is not a widespread spike in scrap demand. The price swing was a modest $20-per ton this month, ranging from an increase of $15 per gross ton for plate & structural scrap in Pittsburgh and eastern Ohio, to a meager $5-per-ton drop in busheling prices in the South. Most mills bought the same volume of scrap as last month, a few have scheduled downtime for maintenance or repair work, and bulk cargo ferrous export demand has sunk into the doldrums. These modest price moves were described by some traders and brokers as a sideways market and contrasted with the bigger changes seen in the past two months. In April, prices slipped by between $10 and $20 per ton though some mills and brokers had sought reductions of $35 per ton, particularly for shredded scrap. In March, however, busheling and bundles prices soared by $60 per ton while the obsolete grades rose by $40 per ton. Scrap price moves were not uniform from region to region. There was little or no consistency in the price moves from region to region. One region didn t serve as the pricing pacesetter for neighboring regions, as has been the case frequently over the past two years. Detroit, for example, has often been the market leader. But busheling and bundles prices rose by a mere $10 per ton to $ per ton, while shredded scrap remained unchanged at $300 per ton delivered to the area mills. No. 1 heavy melt, and five-foot plate &structural scrap likewise were sideways at averages of $280 and $295 per ton, respectively. Yet, in the Cleveland area, less than 170 miles to the east, the opposite pattern was seen. Prices of industrial scrap were unchanged at $390 per ton, while the obsolete scrap grades rose by $5 per ton. Heavy melt is now $280 per ton there, while shredded climbed to between $300 and $310 per ton. P&S now ranges from $295 to $305 per ton on a delivered-to-the-mill basis. Supply issues played a larger role in many pricing decisions this month. A Detroit area flat-rolled mill raised its offers for busheling and several other mills in the region followed. That mill also boosted its overall buy to about 180,000 tons this month. This May 11, 2017 Mike Marley (484) Peter F. Marcus (201)

2 is about 30,000 tons higher than its usual monthly buy. Much of the additional scrap was busheling. Its goals were twofold, said an area trader. First, it sought to minimize losses of local busheling supplies to rival sheet mills elsewhere in the Midwest. Secondly, like other domestic flat-rolled steelmakers, that mill has been running at capacity for much of the past year. Now, he added, it is trying to build its industrial scrap inventory ahead of the summer months when the automakers, who are the main generators of this scrap, will take summer vacation shutdowns. A new concern this year is whether car makers will extend those closures at some stamping and assembly plants for another week or two, due to the slower sales of their compact and mid-sized models. Oil country steel demand drives scrap prices higher in Pittsburgh and eastern Ohio. Mills in the Pittsburgh and eastern Ohio region posted the biggest gains this month. They boosted the price for P&S to $310 per ton, up by $15 per ton from last month. Shredded scrap prices rose by $10 per ton to between $305 and $310 per ton, No. 1 heavy melt matched that $10-per ton gain and increased to an average of $285 per ton in this region. But busheling and bundles prices were unchanged. Part of the gains in the P&S price reflected higher rail freight costs from eastern coastal areas where cut grades are more abundant. Several major bridge demolition and reconstruction projects are now underway there, said another industry source, and buying prices at the docks are less competitive. Also, though some of these mills are often users of bundles and busheling, their purchasers and melters were told to avoid the industrial scrap and use more of the cheaper obsolete scrap like shredded and P&S. Demand from the flat-rolled mills has pushed the busheling price premium to as high as $90 per ton over prices of obsolete grades. Less than a year ago, said a Pittsburgh area broker, the area mills could buy busheling and bundles at about the same or slightly higher prices than shredded and P&S. Now, he added, the Pittsburgh and Ohio area mills which produce pipe, tubing and other steel products for the oil and gas drilling industries, are enjoying a rebirth in demand for their products and have sharply increased their scrap consumption from year-ago levels. Smaller EAF mills that were taking in 5,000 or 10,000 tons of purchased scrap are now buying as much as 40,000 tons. One larger mill doubled its scrap buys to 100,000 tons or more in recent months versus 50,000 tons per month last year. Prices in the South were unchanged except for a $5-per ton drop in busheling. Prices at several mills in the South were unchanged from last month s levels. But one major EAF steelmaker bought several cargoes of bundles from western European scrap exporters in the past month and pushed for a $5 per ton reduction in prices paid to its domestic suppliers for their industrial steel scrap. 2

3 More troubling for many of the Southern steelmakers are the delivery problems from local yards and their suppliers in the upper Midwest. Heavy rains throughout the region have flooded several highways and delayed truck shipments. Worse are the high water levels of the area s rivers. One broker said barge shipments are prohibited on the Mississippi River below St. Louis. That could delay shipments to several mills in Arkansas. Water levels aren t a problem on the U.S. East and West Coasts, but offshore demand for bulk cargoes hasn t shown much activity in the past week. Turkish mills raised their import prices by about $7 per tonne to $275 per tonne for 80/20 heavy melt delivered to a Turkish port and $280 per tonne for shredded scrap. They are expected to return to the U.S. docks this month before the start of the Moslem holy month of Ramadan on May 26. But U.S exporters have not changed their buying prices. One East Coast industry member said they are still paying small dealers between $205 and $210 per ton for export heavy melt and $220 per ton to the larger dealers. The market s pace this month also suggested to some traders and brokers that the recent pricing volatility in domestic ferrous scrap may be waning and that supply and demand could be in balance in the coming months. Others argued that the action this month simply may be the eye of the pricing storm and the outlook for the coming months is anything but clear. First, the supply of busheling and bundles from the auto industry could tighten up in June and July as the automakers close plants for summer vacations and retooling to make new cars. Likewise, some dealers said they expect the Turkish mills to return to the U.S. docks in the coming weeks and buy more scrap. That could siphon off much of the heavy melt and shredded scrap. Also, demand for shredded scrap in containers has increased in some coastal markets. Offshore buyers are paying as much as $280 per tonne for a container load dropped off at the docks, said one U.S. Gulf Coast trader. That is up by between $5 and $10 per tonne from last week, he said, and is competitive with the offers from domestic mills in that region. Likewise, said a veteran Midwest trader, obsolete scrap supplies are flowing into dealers yards, but still at the restrained pace that has prevailed for much of the spring. Despite steady demand and modest price gains this month, he said, several dealers believe that ferrous scrap may now be at a pricing and demand peak. They have no desire to hold much scrap off the market, he said. Most have little inventory in their yards and will be selling all the tons they expect to see coming across their scales this month and next. A mill buyer in the region echoed that report. Though he had finished his scrap buy late last week, a pair of dealers called early this week asking if he would take another 1,000 tons of shredded scrap or 500 tons of P&S, he said. Sheet demand continues at a steady pace, but some traders fear domestic steel demand may be softening. One Chicago-area trader said hot-rolled coil prices have been slipping and are now down to about $ per net ton at domestic flat-rolled mills. Order lead times are still between 4 to 6 weeks. 3

4 It s unclear whether this reflects new challenges from steel imports or less buying by one key segment of the steel market, the steel service centers. Inventory levels at many of the steel warehouses are at less than two months supply, according to the industry s trade organization, the Metal Service Center Institute. And, the domestic steel industry s capability utilization rate has see-sawed from 71% at the start of the year to as high as 75.6% in mid-march. Last week, raw steel production inched down to 1,737,000 tons from 1,750,000 tons the previous week and the industry s operating rate dipped to 74.5% from 75.1%. Shredded Scrap Thermometer: Substituting Shredded for Busheling. Melters are often seen as creatures of habit, according to one veteran scrap buyer. Their melt shop practices enable them to produce raw steel at a steady pace. They have learned to use various grades of scrap as a layered charge in an EAF and produce as much steel as possible in the minimal tap-to-tap time. The melt shop looks like the anteroom to Hell to an outside observer. Fiery cinders fly overhead as they dump scrap into the furnace, noise from the electrodes rattles eardrums, thick electric cables dance along the wall like a disjointed line of Rockettes. Still, this all runs smoothly until management says let s tweak the melt mix in order to lower the raw materials costs or avoid paying unreasonably high prices for busheling and bundles. No problem, says the shop foreman, until he is forced to deal with these challenges to the rhythm of his operation. Melting heavier and thicker scrap like old I-beams might require more time than it takes to melt thinner and lighter gauge sheet steel scrap like busheling. And filling the empty spaces in the charge bucket with more shredded scrap or mixed turnings to boost output can produce an unpredictable chemical composition to each heat of steel. Sometimes desirable cast iron sewer pipes that yield more iron can also provide some surprises like unwanted lead joints that alter the steel s metallurgy and can result in a furnace breakout if the lead pierces the refractory mortar and reaches the furnace s outer shell. For this reason, demolition contractors must be instructed to bust the pipe s bell joints and remove the lead before the scrap is brought to the yard. Using more obsolete scrap can produce some unusual materials i.e., like a 25-pound granite boulder that was scraped up by a front-end loader gathering the last remnants of a pile of mixed No. 1 and No. and heavy melt. Coping with some of the surprises that occasionally turn up in the charge bucket is not an unusual challenge to a veteran melt shop superintendent or foreman. They have their own wild cards for dealing with these. Two such mechanisms are: Buying the melt. If the scrap can be shown to have impacted the steel s chemistry and the source of the scrap can be identified, some mills will require the dealer to buy that heat. In other words, he reimburses the mill for the cost to produce that steel. That s can include not only the scrap, but also the labor and electricity cost. If the 4

5 contaminant is a radioactive material, that can include relining the furnace, lost production time and cost to dispose of the irradiated steel. That could total millions of dollars. Dead melting. In this case, the melters will take the entire load of, say shredded scrap from one dealer and melt that in the EAF. If it fails to meet the specs for that mill, the dealer may be told to take all the tonnage shipped to that mill or the mill buyer may choose to use the scrap, but downgrade it and look for a hefty rebate from the dealer. The Nasdaq Futures Exchange (NFX) expects to start trading in the Midwest US shredded scrap index futures on June 15, The contract will trade in 20-gross ton units with the prices settled on the 11 th day of each month against the TSI Midwest US Shredded Scrap Index published by Platts. For additional information about shredded futures trading, contact John Conheeney at WSEM. His phone number is and his is jconheeney@wsemgroup.com. Note: Each issue, Mike Marley gives his opinion on the one-month steel scrap price outlook. He explains the key reasons for his view and highlights the wild cards that might cause him to be wrong. This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict. Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, international currency movements, technological developments, governmental actions and/or other factors. The information contained in this report is based upon or derived from sources that are believed to be reliable; however, no representation is made that such information is accurate or complete in all material respects, and reliance upon such information as the basis for taking any action is neither authorized nor warranted. WSD does not solicit, and avoids receiving, non-public material information from its clients and contacts in the course of its business. The information that we publish in our reports and communicate to our clients is not based on material non-public information. The officers, directors, employees or stockholders of World Steel Dynamics Inc. do not directly or indirectly hold securities of, or that are related to, one or more of the companies that are referred to herein. World Steel Dynamics Inc. may act as a consultant to one or more of the companies mentioned in this report. Copyright 2017 by World Steel Dynamics Inc. all rights reserved 5

6 NASDAQ FUTURES, INC. (NFX) CONTRACT SPECIFICATIONS CONTRACT NAME DESCRIPTION CONTRACT SIZE TICKER SYMBOL CONTRACT LISTINGS TRADING HOURS TRADING PLATFORM MINIMUM PRICE INTERVAL/ DOLLAR VALUE PER TICK DAILY SETTLEMENTS PRICES LAST TRADING DAY FINAL SETTLEMENT FINAL SETTLEMENT DATE FINAL SETTLEMENT PRICE CLEARINGHOUSE NFX US Shredded Scrap Steel Financial Futures USD cash-settled NFX US Shredded Scrap Steel Financial Futures are quoted in terms of USD per Gross ton, and are based on Platts TSI s US Midwest Shredded Steel 10-day Average Price Index. 20 Gross Tons (2240 lbs) USSQ Up to 12 Consecutive Months Sunday Friday 7:00 PM EPT 5:00 PM EPT Nasdaq Futures Inc. (NFX) Fifty cent ($0.50) per MWh = $10.00 Daily settlement prices will be determined by NFX using price data from a number of sources including, spot, forward and derivative markets for both physical and financial products. Trading shall cease at 5:00 PM EPT on the tenth calendar day of the month or the last business day prior to the 10 th calendar day of the month. Final settlement for contracts held to expiration is by cash settlement in U.S. dollars. The Final Settlement Date is the second day on which the Options Clearing Corporation is open for settlement following the Last Trading Day. The final settlement price will be based on the Platt s TSI s US Midwest Shredded Steel 10-day Average Price Index. The Options Clearing Corporation 6

7 MUST ATTEND EVENT FOR THE STEEL INDUSTRY Steel Survival Strategies XXXII will once again deliver key executives from the steel industry John Ferriola Chairman & CEO Nucor Corp. Wilbur Ross Secretary of Commerce (Invited) Mario Longhi CEO US Steel Lourenco Goncalves Chairman, President & CEO Cliffs Natural Resources June 26-28, 2017 Marriott Marquis New York Alonso Ancira Elizondo Executive Chairman AHMSA Andre Gerdau Johannpeter President & CEO Gerdau Yuriy Ryzhenkov CEO Metinvest Leo W. Gerard International President USW-United Steelworkers Roger Newport CEO AK Steel Naveen Jindal Chairman Jindal Steel Antonio Marcegaglia Chairman & CEO Marcegaglia Li Xinchuang President China Metallurgical Basak Turgut Chief Marketing Officer Erdemir Alan Kestenbaum Chairman Bedrock Industries Group F. Nicholas Grasberger President & CEO Harsco Corp. Donald B. Cameron Partner Morris Manning & Martin Jim Barnett President & CEO Grand Steel R. Joseph Stratman Executive Vice President Nucor Corp. Atanu Mukherjee President MN Dastur & Co. Kazuo Fujisawa Principal-Overseas Business JFE Steel Reserve Your Seat Today (212)