Scrap Prices Weaken as Week Progressed

One of our Southern sources of information for both pig iron and scrap prices put the situation regarding the domestic exporters to Turkey (east coast) into perspective for SMU with the following:

“There has been a lull in export because Turkey cannot match the prices paid by domestic mills.  So, the exporters on the US East Coast decided to sell their shredded to mills in W. PA and Ohio and other destinations to the south.  This put a cap on Frag.  So instead of going up $35-45 GT, it only went up $20-25GT.  As things developed, some shredders figured they would take an order and the mills took advantage to lower $5GT.  This affected the busheling market which was poised to go up with shredded.  With busheling coming in from Canada and reasonably price pig iron coming in, it enabled the busheling market to rise modestly. The lack of mills running in New Jersey and Delaware was a factor.  Despite this development, there is virtually no flow of obsolete into the yards in the Northern tier and any ideas the mills have to lowering prices in Feb is silly.  There are several large scrap companies which have not sold into this market yet.  So, it remains to be seen if the mills get their tons delivered.”

Current pig iron prices on material arriving now were reported to be $409 per metric ton, CIF New Orleans (NOLA). The pig iron prices coupled with the flows out of Canada on prime grades are combining to hold down #1 busheling prices. Quotes out of Brazil for new pig iron shipments are now reported to be at $420/MT CIF NOLA.  

One of our East coast scrap sources spoke to the lack of scrap exports, Canadian prime scrap exports to the U.S. and where do scrap prices go from here:

“A few things happened during the January buy program which put a top on the market at least for now.  One was the move of scrap from Sims and Schnitzer to domestic mills down south and in the Mid-west and OH Valley.  It clearly pays for them to sell some scrap domestically.  Even if they get the pricing they are currently asking for from Turkish mills ($408/MT +/- for 80/20  mix), there is still a $25/GT or so premium for them to sell it to a domestic mill.  The Turks don’t even want to pay the asking price so the exporters don’t have much of a choice to sell some domestically.   They certainly owe it to their shareholders.  But because of the disparity in quality between export grade heavy melt (and even shred to some degree) and domestic quality requirements, they can’t move everything they have to domestic mills.  

“Another factor was the availability of a lot of Canadian prime scrap being offered at very close to the shred price in the Mid-West.  Busheling is not going to trade at a discount to shred – at least not for long.  And finally, it seems that some of the mills decided they just didn’t need as much scrap in January as some anticipated and consequently were able to turn down offers.  

“Where do we go from here?  We may see prices give back some of January’s gains in February especially if the exporters continue to move scrap to domestic consumers.  We will work off the busheling overhang at some point, but it may take a few months.  It’s not unusual to see February pricing slightly off January levels, though that often happens when there has been a run up in January pricing.  So a sideways move or a few dollars lower is possible for this February.  

“The main question for scrap dealers is how good are the domestic order books?  Are they steadily improving?  Will the operating rate clear 80% in the next several months.  The mill order book picture does not look a lot different today than how it did in late-2013.  If demand doesn’t pick up, we will certainly see some of the recent scrap price increases fall back.  But if domestic demand strengthens, there continues to not be enough scrap on a sustained basis to supply that demand, and prices will rise further.”

The Chicago area scrap market pricing is reported to have been as follows:

#1 HMS (heavy melt scrap) = $420 per gross ton.
Shredded Scrap = $435-$440 per gross ton.
#1 Busheling Scrap = $440-$450 per gross ton.

The spread between shredded scrap and prime grades like #1 busheling is too narrow and the domestic mills will buy as much busheling as possible due to the limited residuals (copper, etc.) contained in prime grades vs. shred and obsolete grades. Limiting residuals is important in the production of carbon flat rolled versus long products.