April Early Read on Scrap: Flat to Down $10
Last week a Western New York dealer sold shred into the Ohio and Western Pennsylvania markets down $10 per gross ton compared to prices at the beginning of the month. Many involved in the scrap business do not see these sales as a leading indicator of where prices will be set for April mill shipments. Steel Market Update has begun to canvass the market to see if the down $10 number was one we should put in the bank for April or just an aberration.
We had mixed responses coming out of our Midwest scrap sources with one reporting they believed prices would be down across the board while a large dealer told us, “Early read is flat to down $10 on cuts and shred - prime will likely be even. Steel mill operating rates are holding up well & export remains firm which is being countered by better inbound scrap flows. I don’t expect much action in the markets until next week, but it appears to be range-bound at this stage.”
We posed the question to one of our east coast scrap sources who told us:
“I am not so bearish on the market. I know about the sale last week at down $10/GT. We all know who the seller is, so we need to ask ourselves why he would be the only one to jump into the market at down $10 at the end of the third week of the month. Is it because he knows something no one else does? Or is it because he happens to be in a position where he has to move scrap. I don’t know for sure, but as he is the only one I know of right now rushing for the exits, I just have to be very skeptical of his real motivation.
In any event, flows into our yards are not what we have seen at the end of March in previous years – they are much slower this year. I don’t think there is much of an overhang of shred out there. If the shred market were to be down $10/GT in April, I think the tons I could offer mills would be pretty limited. Margins for shredders all over are very tight and if mills want to take the price down even $10, shredders will need to drop prices to make money. At some point, making no money with your greatest physical asset gets old. I think at a sideways number, we could offer what we did in March.
#1 HMS is probably the tightest grade out there. I don’t think export is soft; rather, there have been a lot of cargos sold in the last week or two (10+ from the east coast). Many of the deals for 80/20 were done at $440/MT though for one deal I am aware of last week the seller got $441/MT for 80/20. That’s about $410/GT FAS. Freight rates have increased a little, the dollar has weakened vis-à-vis the Euro, and the rebar business in the Middle East has picked up somewhat. US exporters have been trying to push the price higher but I am not aware of any of those higher deals being made. But I am also not seeing weakness in the export market.
Plate and structural scrap is probably the most abundant grade right now. The prime to obsolete spread will stay narrow, and maybe shrink a little more.
So bottom line – depending on the grade, I think April generally looks sideways, especially for shred and #1 HMS.”
In Mike Marley’s most recent report (World Steel Dynamics) he too was picking up mixed results regarding scrap collection and projected pricing, “There are mixed reports on prime steel scrap overhanging the market. Some argue that there are no major excesses of industrial scrap. Demand is good and most yards are not holding back scrap as some did in January. Others disagree. There is extra, said one broker and that will enable some mills to push down industrial steel scrap prices. No. 1 dealer bundles will be available at the same price as shredded scrap next month, he said.”
Mr. Marley also pointed out in his report that some shredder operators were paying as much as $330 per ton or more for junk cars and therefore, cannot accept prices much below $440 per ton for shredded material which is essentially where prices are at this time.
We do not expect to get a better picture of April scrap prices until late next week. Sign up for a free trial to Steel Market Update's newsletter to read next week's update on the scrap market.