Steel Mills Cancel September Scrap Orders in Anticipation of October Swoon

We then asked him to provide SMU his insights into what is driving scrap prices at this time. He told us, “Excess mill inventories, softening steel prices, sidelined steel buyers are imparting a fear we haven’t seen in the ferrous markets since the GFC as concern rises over having a market for scrap, let alone a price.”

When asked if the weakness at the steel mill level was associated with long or flat product mills he told us, “Weakness prevailing on both fronts.”

When asked how far he expected to see scrap prices fall as October negotiations begin in earnest he said, “We’ll see in excess of $30/gt across the board as supply will once again overhang the market.  However, as these prices push below $200/gt obsolete inbound scrap will slow considerably and likely bring some speculation as retail scrap prices fall below $100/gt.  However, industrial flows should remain steady, countering some of the shortfall.”

He went on to comment on what point we could see a bottom to the drop in scrap prices, “I would suggest that October/November pricing will represent a floor on obsolete scrap.  We’re nearing a point where the costs of collection, processing, and transporting of ferrous scrap at any margin is economically prohibitive.  I believe scrap will likely remain range bound at these lower levels through year end as overall metallics demand continues to contract.  Despite the prospects for better steel prices heading into 2016, scrap prices will remain lackluster in light of dismal scrap exports, the stronger dollar, weak ore prices, and continuing imports of scrap, ore-based metallics, and semi-finished steel.”

Other sources told SMU that we should expect to see HMS around $150 per gross ton and shredded scrap below $200 per gross ton.

We will have more details next week once the markets begin to settle.