Last week we received information about the expectation for ferrous scrap price negotiations between the domestic mills and their scrap suppliers for the month of December. Over the weekend one of our east coast scrap sources provided us more details as to what they expect this week as negotiations begin in earnest:
I am not absolutely certain what the upcoming trading week has in store. Shred in the mid-Atlantic is in short supply and there is some demand for it from the local mills. With all the export scrap sold recently, the exporters seem to be preoccupied filling their own needs, will pull the scrap they need from local dealers and likely not offer any to the local mills. So we could see shred up $25-$30 from November levels in the east. In the OH Valley, I don’t expect anything less than sideways for obsolete grades and more likely we will see trading in the $180-$190 range there as well, which is slightly up. Consensus is that prime supply will keep those grades sideways for the most part, but mills looking for shred may find it easier to just buy busheling because they can’t find enough shredded, even though their melt shops may not be very happy with that decision.
I anticipate that over the longer term (i.e., over the next month or two), obsolete grades will stay tight, while busheling supply recedes a bit in part due to the seasonal slowdown and some shredders shredding busheling if its price dips much below shredded for a prolonged period of time. I don’t expect any real price spikes in the coming months, though that does not mean we won’t get some price increase over the next 60 days.
Margins will continue to face pressure because of the reduced volumes at scrap yards. Iron ore looks like it actually may work its way into the $30s though who knows how real that is longer term. That will likely pressure scrap further. But I also don’t think we push much below prices we have gotten to this fall, at least until next spring assuming the operating rate stays around where it is now. Melt shops all over the country need shredded scrap for its density and chemistry combination, and its supply elasticity being so dependent on price is going to prevent it from going much lower than we got late this year. We have seen busheling trade below shred recently. It’s not the first time over the last few years that has happened. But at some point it pays to shred the busheling instead of selling it as a busheling product.
All in all, no real good news on the horizon. I would take some stability and a chance to get used to the new volume levels for now.
John PackardRead more from John Packard
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