Ferrous scrap prices are one of the key indicators to watch as the market determines if we have reached the bottom in the slide in flat rolled prices and, if prices will rebound from here. The thought process has been that a move higher in scrap will help change the psychology of the market and provide some footing for the domestic to push for higher prices.
By the end of this past week Steel Market Update was learning from our sources that prime grade scrap pricing was moving sideways (busheling and bundles). Prime grades have been in over-supply lately due to strong flows coming out of the automotive stamping plants while at the same time the flat rolled mills that use bundles have had tepid orders books. At least up until now.
Other grades of scrap such as heavy melt (HMS) and shredded scrap, rose $10 to $20 per gross ton depending on the region.
One of the large national scrap companies told us in a note on Friday, “The markets came and went rather quickly this week essentially wrapping up at even prices for prime grades, up $10-15/gt [gross ton] on cuts and frag. Interestingly, sentiment firmed as regional demand, particularly EAFs, surfaced in some areas. It appears mills were content to buy limited volumes while dealers were more cautious as flows remain anemic and visions of improving prices in January emerged later in the proceedings. I’m expecting to see at least a $20/gt or more improvement across the board in January with q1 potentially being $40-50/gt higher than December.”
A dealer in the Ohio Valley put trading into perspective for SMU with the following comments:
“December pricing is sideways to up $20 depending on region and grades. Market strength is primarily due to:
• Higher export prices which is keeping east coast scrap from moving west to the domestic mills.
• Lack of supply due to reduced collections caused by low prices
• Expectation of higher prices in Jan
1. mills will need to re stock inventories in Jan after reducing for year end accounting.
2. seasonal issues such as weather/low supply.
Eastern mills began this month’s buying sequence with up $15 to compete with recent increases in the export mkt. Western and southern mills then followed with sideways prices, being farther away from the coast the export numbers not effecting prices. As the market progressed consensus grew that Jan would be higher and mills started to raise prices to get ahead of that market. National consumers are attempting to buy as much as possible at initial Dec levels.”
We understand that the strongest trading area was in the Northeast where we learned a number of mills were in need of shredded scrap and scrap exporters have been influencing supply over the past few weeks. One of our scrap sources in the Northeast told us:
“The strongest area was the northeast where a few mills were in desperate need of shredded scrap and export demand has been stronger over the last few weeks. Cut grades were higher by $10/GT and shred was higher by $15-$20/GT (shred was around $180/GT in the NE). The one mill in upstate NY did buy at sideways pricing early on in the month.
In the OH Valley and in the south, mills came out trying to buy sideways from November (a few even tried to cancel November orders and buy at lower prices). But dealer resistance prompted them to raise prices anywhere from $5-$15/GT. Shred in the OH Valley was around $180-85, and even a little higher the further west you traveled (reaching $190-95). Then the larger buyers (David Joseph and Omnisource) began looking for prime grades on Thursday, buying them at higher numbers than November.
There seems to be some sentiment that there will be better demand for scrap in January which will push prices higher, maybe by another $10-$20. Areas that got a good bit of that bump this month will likely not see as much of an increase next month. No one thinks things are getting any better overall. This is the trading range we should get used to.”
One of our Ohio Valley sources concurred telling us that the market was already strengthening by the end of the week, “Today [Friday] I am being quoted up $5-10gt higher for grades like shred than I was quoted earlier in the week. My expectation is the broad market will go up $20gt from initial Dec levels to Jan. This figure is the approximate amount it would take to draw scrap off the coast. I also believe this increase will be short lived as once inventory levels have been corrected at consuming mills demand will drop to previously low levels.”
John PackardRead more from John Packard
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