Final Thoughts
Final Thoughts
Written by John Packard
June 1, 2016
My understanding is most of the mills canceled any scrap not yet delivered by the end of May. They do this when they believe scrap negotiations for June will result in better prices for them. It is still very early in the negotiation process, especially considering that Monday was a holiday. One scrap expert told me this afternoon, “Originally thought -10 on primes, -30 on shred, -20 on cuts. I don’t think it’s that bearish right now though. Primes may end up sideways. With export, cuts probably stay 20. Shred may come back to 20 as well. Shred will certainly hit a floor with drops. Flows aren’t that great.”
So, the door is still open and we will need to watch and wait. If shredded scrap drops and then settles in at that number (or higher) then the negative influence on prices may be muted.
I was asked this evening if our Price Momentum Indicator is still pointing toward higher prices. The simple answer is “yes” but, the more complicated answer is looking at foreign hot rolled offers at $540-$580 per ton and the domestic numbers at $620-$640 per ton (average $630), the spread is $50 to $80 per ton. There may be room for the domestic mills to move another $10 per ton but, I would think without an increase in demand that should be a solid fair number for the domestic mills. So, my gut tells me to leave the indicator pointing toward higher prices on hot rolled but the reality of the market should be for stability at current levels (+/- $20/ton).
I am having a much more difficult time with cold rolled and coated steels. The spread between HRC and CRC/GI/AZ have grown to be a little excessive. At these levels either the end users are going to abandon manufacturing here in the U.S. or foreign product is going to come into the country in growing amounts. Over the short term the mills are controlling supply and in the process prices. This keeps the Momentum Indicator pointing toward higher prices. Logic and past experience tells me that when base prices get into the mid-$40’s and beyond steel buyers look for alternatives. The steel mills should be happy at $40.00/cwt base prices ($800 per ton) which is a healthy $170 per ton spread over HRC base pricing (the mills are asking for CR/coated base prices as high as $44.00/cwt or $880 per ton – you do the math regarding the spread between HR and CR/Coated). I would like to move my indicator to sideways – that seems like it would be the smart move but, that is just my one opinion and you know what they say about opinions…
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