Sudden temporary shortage of prompt units fires up demand for UBCs
Executive Summary
USA MARKET COMMENTARY
1. ALERT. Sudden temporary shortage of prompt units fires up demand for UBCs.
According to our visibility, this sudden shortage has to do with: a) freezing weather slowing down scrap delivery in some regions (indeed one mill that is largely exposed to the spot market was suffering the most), and b) An apparent delay of off-shore body can stock shipments, which triggered an urgent need for more domestic material. Moreover, our intel suggests that mills are not risking a scenario in which winter conditions cause a more severe scrap shortage. Consequently, UBC spot prices ticked up somewhat. Our most recent intel confirms some deals were made at 63.0 cent/lb delivered (still implies discounts below the MWTP of +40 cent/lb though).
More details in full report.
2. Prices for 5052 spot material remains firm, tighter specs help to explain.
5052 pricing remains high despite an oversupplied market. 5052 scrap is being quoted at 90.0-92.0 cent/lb despite ample availability. This could be to avoid a scrap shortage or to assure the material is true mill 5052 spec. Mills have significantly tightened scrap specifications, which means that they are buying the highest quality of mill scrap out of the available units. The fear of losing mill spec quality 5052 packages from scrapyards could be the reason for not drastically dropping the price.
More details in full report.
3. One non-traditional Mexican supplier offering A319 sows in the US market.
Some small volume of on-spec 319 sow offered to US secondaries from Mexico. We are hearing that a secondary player in Mexico offered on-spec 319 sow to various US secondary smelters. Meanwhile, US secondary smelters have been offered more mill grade scrap items in the recent weeks because of oversupply in the market. Our sources in the secondary market confirmed buyers are getting basically all the old cast and old sheet they need comfortably at 45.0-47.0 cent/lb depending on the region.
More details in full report.
4. Tighter spread between clean and dirty 356 rims to discourage clean rims processing.
Our intel from the ground confirms both clean and dirty 356 wheel prices at 77.0 cents/lb delivered to Midwest and South for prompt shipment. Historically, the price difference between clean and dirty 356 rims is 6 to 8 cents/lb. Reality is that today the price for dirty rims is equal or only a couple cents below clean rims. Consequently, scrapyards would start to not waste time and labor upgrading dirty rims to clean. According to our visibility, on average it is only valuable to upgrade dirty rims if the price for clean 356 rims is 4.0 cents/lb or higher than dirty 356 rims.
More details in full report.
MEXICAN MARKET COMMENTARY
1. Mexican consumers asking for wide discounts for A380 amid emergence of a Tier system in US market.
The US market A380 alloy ingot market has a Tier system, each with different price levels. Our intel from the ground confirms real spot A380 prices are hovering in the US at around 80.5 cent/lb (discount of around 4.0 cent/lb below journalistic references- Tier 1). However, large volumes sold to good credit buyers are even selling at 78.0 cent/lb (discount of 6.5 cent/lb-Tier 2). Meanwhile, NASAAC material to die casters is trading at 74.0-75.0 cent/lb (discount of 10.0 cent/lb- Tier 3) and HARBOR has confirmed today a deal for A380 remelt sows (RSI-Tier 4) at 68.0 cent/lb (discount of 16.5 cent/lb).
A380 alloy prices in Mexico have softened. Today, A380 material is selling at discounts below A380 journalistic references of 1.0-2.0 cent/lb in the Mexican market, sharply down from 3.0-4.0 cent/lb journalistic references a year ago. Our intel from the ground indicates that some Mexican consumers have started to ask for discounts of 5.0-6.0 cent/lb below journalistic A380 price references. Main argument seems to be that Mexican consumers are able to get US-origin material at these prices, even after adjusting them by freight rates. According to our visibility, this true only if we are talking about NASAAC (Tier 3) or A380 remelt sows RSI (Tier 4).
More details in full report.
2. Temporary shortage of prompt UBC units in the US reactivates imports from Mexico.
According to our visibility, this sudden shortage has to do with: a) freezing weather slowing down scrap delivery in some regions (indeed one mill that is largely exposed to the spot market was suffering the most), and b) An apparent delay of off-shore body can stock shipments, which triggered an urgent need for more domestic material. Consequently, UBC spot prices ticked up somewhat. Our most recent intel confirms some deals were made at 63.0 cent/lb delivered (still implies discounts below the MWTP of +40 cent/lb though).
UBC units from Mexico have been attracted again to the US, lured by cheaper freight rates as well.Traders/brokers and some US mills directly started to bid again for Mexican UBC units (after at least three months of almost nil activity). We can confirm most deals were made last week at prices around 58.0 cent/lb delivered Laredo, Texas at a time that the Mexican UBC domestic market was trading around 54.0 cent/lb. It is worth noting that freight rates to move the metal from Laredo to the MW region have dropped from 7.0-8.0 cent/lb to 4.5 cent/lb, which make US buyers more competitive now.
Is this a new sustainable trend? We don't think so, factors behind this price increase seem mostly temporary.
More details in full report.