I expected that we’d start off January with prime scrap prices modestly up if for no other reason than industrial activity typically slows down over the holidays. And mills’ appetite for scrap typically increases in anticipation of stronger Q1 order activity.
It’s a normal seasonal pattern. So I wasn’t surprised to see Cleveland-Cliffs come out with a price increase last Wednesday. And up $50 per short ton (st) seemed reasonable, even modest by the standards or prices increase over the last year.
January scrap, it’s messy
But then things got weird. One mill, typically the leader in US scrap price trends, offered down $50 per gross ton on prime last Friday. Another mill didn’t follow and instead bought sideways – or that’s my best understanding of where things stood when this article was filed.
It all seemed a little, well, unsettled. My colleagues and I checked with some of our scrap sources on whether the January scrap settlement was more chaotic than usual. They confirmed that it was.
“It’s hard to take the market that far down in January, especially with firming prices for export and pig iron,” one scrap market expert said.
Said another: “This is one of the strangest markets I have ever traded, especially for a January.”
“Where we are right now is … the US domestic market won’t commit to prices, with sellers expecting sideways prices and consumers bidding anywhere from sideways to down $10-$20 for shred and sideways to down $30 for prime grades,” he added.
Will the scrap market finally settle on Wednesday? Let’s hope so! I say that because we’re also seeing uncertainty over the direction of sheet prices. And unsettled scrap prices aren’t helping matters much.
HR going to $1,150 or below $1,000?
Take hot-rolled (HR) coil, for example. Certain mills might be offering $1,150/st. But we haven’t seen many takers at that price. And for larger consumers, prices in the $900s/st remain in the market, buyer sources tell us.
Meanwhile, HR futures for February fell just below $1,000/st on Tuesday. March briefly declined to below $900/st. Futures of course don’t predict the future. But they do reflect the opinion of respondents to our latest survey.
We asked folks when sheet prices might peak or whether they were near a peak already. I don’t want to steal too much thunder from ‘Market Chatter’ in our Thursday issue. But here are some responses:
- “If Nucor does not announce, yes.”
- “It certainly already felt like we were ‘peaking.’ And now with scrap looking soft to start ’24, I would say we are getting there for sure.”
- “I feel they are near a peak or possibly already peaked. Visiting with mills on galvanized coils, they have capacity to fill in February and even stock on hand.”
I’m not going to pin all that bearish/cautious sentiment on scrap. I think it also reflects the reality that HR imports could be available in the Q2 in the $800s per ton, or ~$200/ton below where current domestic prices are. CR imports, meanwhile, have been offered in the $1,000s per ton – roughly where domestic HR prices are now and ~$200/ton below current US spot prices for CR. We’re also told that imported plate could be landing in the spring at around $1,100/ton – or about $300/ton below current US prices.
“Now it’s, ‘Who blinks?’ And I think the mills will blink first,” an executive at a large distributor told me today. “My belief is we’ve hit the high and it’s starting its descent. How low it goes? I have no idea.”
Not everyone was on board with that prediction.
“This is a key week. At the end of the week or toward the end of it, we’ll know whether mill order books are getting a shot in the arm with new orders,” a service center executive said. He also suggested keeping a close eye out for unplanned outages with severe weather now gripping much of the US.
“I’m hoping that this is a big week for the mills so things can keep climbing,” he said. But he also noted that he wouldn’t be making any big, speculative spot buys in the meantime.
SMU Community Chat
Don’t miss the Community Chat on Wednesday at 11 am ET with Reibus. We’ll host new CEO Temy Mancusi-Ungaro as well as President Chris Shipp, who recently returned to the Atlanta-based digital marketplace for steel and metals.
We’ll talk about what new leadership means for the direction of Reibus, what the company sees in today’s market, and we’ll take your questions too. You can register here.
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What are some “Black Swans” to watch out for? With the war in Ukraine entering its third year, your mind might understandably move to conflicts overseas. Here is one closer to home to consider: US trade relations with Mexico taking a turn for the worse. I mention that because the Office of the United States Trade Representative (USTR) dropped a (virtual) bombshell earlier this month.
Domestic prices have been sliding since the beginning of the year, and I don’t see any obvious reasons why the slide might stop this week. But let’s put the timing of a bottom aside for a minute. The question among some of you seems to be whether we’ll see another price spike, or at least a “dead-cat bounce,” before the typical summer doldrums kick in.
I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.
We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?
Everyone knows the old saying that “a picture is worth a thousand words.” Just because it’s a cliché doesn’t mean that it’s wrong. A lot of inked has been spilled trying to figure out why prices are falling now. I thought it might be as simple as this: Market dynamics in the fourth quarter (UAW strike, companies buying ahead of an anticipated post-strike price spike, etc.) pulled forward restocking activity that typically happens in the first quarter.