Big Drop Expected for Ferrous Scrap Prices in January

“I think this is the weakest January ferrous market in history, certainly on a dollar drop basis from December,” said one dealer in the North. “Obviously prices are still well ahead of where they were in 2019 and 2020.”

The biggest reason for the drop is the discrepancy between export and domestic prices, said scrap executives. “U.S. prices are far above worldwide prices – especially Turkey – which turns the flow of scrap away from the coasts and into the domestic market. This price discrepancy also allows U.S. consumers to import scrap and scrap substitutes at a savings. Other reasons for the drop are a softening demand for steel and higher inventory levels. Most participants view this weakening market as short term as demand will stabilize as new capacity comes online,” said another dealer on the East Coast.

“U.S. shredded scrap has been trading at a premium to the global price, in particular the Turkey shred CIF price, so one of those had to move. In light of the Turkish lira situation and anemic demand for finished steel in Asia, it became obvious it was the U.S. price that needed to move lower,” said one source.

The export market appears to be bottoming with some marginally better demand in Turkey and Asia and relatively stable prices, he added. “But with massive cost inflation, Turkish mills don’t have anywhere near the metal margin room they had a few months ago to pay more for scrap. So, I see export trading in the current range for now.”

Scrap flows were strong in the U.S. in November and December, and mills bought ahead into the end of the year. So they were better stocked than normal for January and consequently had less appetite to buy than usual at this time of year, sources noted.

“Mill order books already have holes in them, which is evident in the lower lead times. COVID disruptions are causing mills to pull back their buys more than they normally would as their melt schedules become less certain,” commented one dealer.

“It’s highly unusual for a drop like this in January, but high prices for scrap have indeed brought out more tonnages. February is even money to be sideways,” predicted another exec.

Scrap prices are closely watched as a leading indicator of finished steel prices, which are already trending downward in the first quarter.

The last time prime scrap saw a big drop in the first quarter was in January-February 2015, following an oil price crash in late 2014. Prices for both steel and scrap subsequently fell for most of the balance of the year, according to SMU’s interactive pricing tool. And then, just as now, lower steel prices in the fourth quarter foreshadowed a drop in scrap prices in the New Year.

By Tim Triplett, Tim@SteelMarketUpdate.com