October Scrap Prices Firm Up as Week Progressed

With the accident at Nucor (dome collapsing in a storage area) which has pushed out their start date and now the domestic steel mills announcing a new round of price increases the net result has been a change in sentiment and after a few early deals at down $5-$10 the industry began trading at sideways numbers (same as the prior month) as the first week of October came to a close.

With the domestic mills not only raising spot flat rolled pricing but, also involved in negotiations for 2014 contracts – now might not be the best time to force scrap prices lower thus damaging their negotiation position with their customer base. As Mike Marley, scrap guru for Metals Prices put it in his observations about the scrap market on Friday, “Major steel users in the auto industry, as well as steel service centers and steel distributors that populate the spot markets, might regard it as disingenuous if the mills are simultaneously cutting those prices [scrap] while boosting their steel base prices.”

The domestic mills began announcing flat rolled price increases on Monday and as the week progressed may have helped the scrap suppliers hold the line on pricing. With winter descending upon the industry some of the mills are beginning to build up their scrap inventories – especially if they feel the market may be at, or near, the bottom.

An executive with multiple scrap operations told SMU in an email on the subject, “…Mid month scrap sellers will be scrambling to fill orders taken at down $10-15/gt as the market traded at even levels last week.  At this point metal spreads at the mills continue to expand as scrap prices have lagged.  Short of a significant move to destocking by steel buyers, I expect a rebound in domestic scrap prices in Q4 as improved demand, seasonal tightness, and firming metallics market evolve.”

One of our east coast scrap sources penned this note to us on Friday afternoon:

“I have not heard prices at numbers higher than September but basically by the end of the week I would call this a sideways market across the board.  Certainly any deals getting done today are at September levels.

Shred is $350 in the east, $365-70 in the south, and $355-60 in the OH Valley.  Busheling remains around $400/GT down south and in the mid-west.  Heavy melt is sideways – $320 in the east, $350-60 in the south…it’s very scarce but probably won’t go higher than shred.

What happens over the course of October will depend on flows into dealer yards.  If they are steady, I don’t expect prices to increase dramatically.  Export should pick up but to what degree and when are open questions.  That may be in November.”  

It is SMU opinion that the domestic mills will use the firming scrap numbers during negotiations as a factor to keep steel prices firm and/or rising through the end of the year.