“…the cure for high prices is high prices”

According to Steel Market Update scrap sources, prices of HMS, Shredded and Prime Grades of scrap (such as #1 Busheling) will be much lower in November than what was sold in early October. We are hearing from sources across the USA of falling scrap prices due to “soft steel demand.” Earlier this week SMU reported production rates falling at the domestic steel mills according to the American Iron & Steel Institute.

Below are a some of the comments made by various scrap sources over the last 24 hours:

“In my estimation, scrap will be down sharply in November and potentially in December as well. I expect secondary grades will be down at least $20-30/gross ton (gt), prime scrap will likely be off $40+/gt and I wouldn’t be surprised to see another sharp downturn in December if new steel demand remains soft.

It wouldn’t be unreasonable to assume the ferrous scrap markets could shed $70-$100/gt by the end of the year. According to AMM’s recent scrap trend publication, in November, 2010, #1 HMS was $336.17/gt, Shred was $363.17, #1 Bush was $392.50. Based off last month’s (October ’11) numbers if the markets revisit these year-ago levels, prices could fall $72+/gt, $86/gt, and $101+/gt, respectively between now and year end depending where the steel prices settle.

Ultimately the scrap market will respond to pressure on steel prices and we’re inevitably reminded that the cure for high prices is high prices.” (Large Midwest, East, South scrap company)

One of our East cost scrap dealers who has been bullish on prices for some time had this to say earlier today:

“I am seeing the market down $20-$30 depending on where mills bought last month. That would put mills trying (emphasize trying) to buy shred at around $420-$430/GT in the east and mid-west, plate and structural at about the same, #1 HMS around $390-$400 (the exporters are paying around $370/GT but I don't know how much they are buying), and prime around $470-$480/GT (higher closer to the flat roll mills). Things could change but this is what I am guessing now.

The bottom line though is that most people see this period as the bottom of the market, so I don't know how much scrap will really be sold at those numbers (I would guess the minimum necessary to generate some cash and pacify mill buyers). Export should pick up from here and dealers will hold back some volumes in anticipation of winter coming and general end of the year trends.”

We'll see how things play out....”

While in the Upper Midwest we got this response from a smaller dealer:

“Everything I am hearing is pointing to weak 4Q. Prices for November in discussion I am hearing are ranging in 20-30 down. Don’t see or hear of good Mill demand and Dealers are already looking at loading up on cheaper scrap in anticipation of stronger 1stQ. Nothing good coming out from overseas Market in near term that gives and confidence to Market. All in All could be good time to go south for the winter.”

It is important for steel buyers to watch scrap prices carefully - especially at this time of year. The expectation has been scrap prices would move sideways to higher as we reach the end of the year and with the drop in iron ore prices the landscape may be changing.