Ferrous scrap prices are expected to drop sharply in April as a result of all the market disruptions from the coronavirus. How sharply is unclear. Almost certainly lower scrap prices will add to the downward pressure already being felt on finished steel prices.
Some reports claim scrap could plummet by as much as $100/GT, but one Steel Market Update source calls that figure “unrealistic and sensational.” He added: “If business does not improve, we could see a drop of $50/GT or more, but that’s not the reality today.”
First, mill order books have not yet completely fallen apart. There is some relatively normal demand next month. Second, dealer scrap yard inventories are low to begin with. The market did not move higher as expected at the beginning of March, so heavy dealer spring flows have not materialized. Third, many scrap yards have closed their peddler businesses, so they are not currently collecting shredder feed. This could go on for several weeks. Dealers will process all they can to ship it before the end of the month, and after that the pipeline literally dries up as peddlers, who are the fundamental base source for almost all miscellaneous shredder feed, will have nowhere to take their material until yards open back up. Fourth, some manufacturing has ceased, notably at automotive stamping plants, thereby limiting prime scrap generation.
“All of these factors point to real supply disruptions for our industry, notwithstanding what is expected to be a horrible second quarter for the economy. Where does all that leave steel mill demand for scrap? We are certainly looking at a down market for April, but dealers will have to decide how far out to commit to mills in light of the slowing of their supply chains. So, less scrap is going to come to market, and even less may end up being offered in May. But I can’t tell what the scrap price will be tomorrow, let alone the scrap price in April or May,” he said.
With much U.S. manufacturing considered non-essential and forced to shut down, there will be the obvious drop in demand for steel and thus scrap in the near term, said another dealer in the Northeast. “Scrap prices will fall significantly in April, and I think dealers will jump at down just $50 if given the chance.”
But he sees a limit to how far scrap will drop next month as supply tightens. Inbound flows are already low and most dealers are struggling to complete March orders ahead of predicted drops. Dealers on the East Coast have shut down the retail side of their businesses to reduce person-to-person contact. This will significantly reduce available scrap for April/May.
“As manufacturing grinds to a halt, so too does the generation of industrial scrap. Many scrap yards will simply not have scrap to offer at any price, making the scrap available elsewhere more valuable,” he said.
Added another SMU source: “It’s anyone’s guess how far the market will drop next month. But it should be between $50-70/GT. The docks have dropped $65-70/GT for export quality. They are not getting much traction at $135 delivered, but they don’t care. The mill closures will depress the market, but most mills are running and will need scrap. They should be able to get what they need for April, but after that who knows?
“The Chinese are buying billet in large quantities and at a price substantially under $400/MT. If they were unrestricted about buying scrap, they would go that route.
“Pig iron price should fall about $40/MT from the last USA buy at $363. No one is buying until the April scrap buy is completed.”
Ferrous scrap prices surprised to the low side in March, trading sideways to up just $10 per ton, well below initial expectations of up $10-30/GT. That put March scrap prices at approximately $280-290/GTD for Shred, $265-285 for P/S and $295-310 for Bush. If April plays out as expected, scrap prices will be closer to $200 than $300.
Tim TriplettRead more from Tim Triplett
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