August Expected to be the Low Price Point for Ferrous Scrap Prices

Written by John Packard

Initial reports coming out of the financial community are suggesting ferrous scrap prices could be down $5 to $15 per ton once the August negotiations between the steel mills and their suppliers get under way. The expectation that the prime grades will be hit after spending a couple of months moving sideways.

However, not all of the scrap dealers are in agreement about the direction of scrap prices as one dealer told us, “I am curious what reports you are reading?  I do not think there is a clear consensus to the Aug market. The latest prices into Turkey are rising with US exporters now offering HMS at $235.  If accepted this will be up $20 from a month ago. At this level scrap will not move domestic from the coast making it very difficult for domestic mills to drop prices on shred and cuts. It remains to be seen if imported prime scrap and scrap alternatives such as pig iron have or will take the edge off the domestic prime market.  Consumers talking that market down but many feel demand is still too strong to drop prices. And finally most believe August is the bottom of the 2016 market.”

What is interesting is we have heard from a number of the scrap dealers that the steel mill’s need for scrap will be reduced as we move into August. One dealer from the upper Midwest told us, “I believe we will see the market go down in August $5-$20.  The biggest price hit to be on prime.  I believe mills need for scrap will be less and biggest driving factor for price reduction.  I think with tightness in market and mill business still pretty good, market is going to be going up as we go forward into fall… Any additional users (River steel) will put pressure on already tight supply chain and will bring price up on scrap.”

From the east coast we heard from a dealer that prime grades will be down $10-$15 per gross ton but obsolete grades will move sideways and not drop any further. As we move past August prices should rebound, “Inflows into yards have weakened considerably.  The latest export sales appear to be trending higher – up $10 from about a week ago.  There continues to be a dearth of demolition projects. Demand may be less than it was in July, but I think with respect to obsolete grades we will see a lot of dealer resistance to lower prices.  If they are lower, I would not expect much more than $5 lower than last month.  I do expect lower prime prices come August.  I am not sure how much yet but the spread between shred and prime is wide enough that it needs to tighten because of the relative yields of each grade, and in light of how weak shred flows are and lower pig iron prices today my bet would be that the tightening comes from lower prime prices in August.”

We heard similar sentiments out of one of the larger dealers in the Chicago area who reported that the mills outside of the Midwest are seeing a weakening in their order books which would pressure prime grades (busheling and bundles). “Detroit and Chicago will have good demand. East and South demand will drop.”

Big River Steel Expected Impact on Scrap Markets Later this Year

Later this year, the brand new Big River Steel mill will begin operations in Arkansas. The new mill is a “mini” mill meaning it will be using electric arc furnaces to melt scrap to make new steel. As they come online, which at this point won’t be until late November/December 2016 and could slip into the New Year, they will put pressure on the existing scrap sources and potentially impact pricing.

We asked a number of the scrap dealers what they thought about Big River Steel coming into the scrap markets and what markets could be most impacted. One large scrap source told us that the impact may not be felt so much in the south but may have a bigger impact further north and east, “Big River – it is interesting to note that this mill does not have direct access to the CSX or NS and will be at a freight disadvantage to points east.  Big River will, however, immediately affect the river market which includes Pittsburgh, Chicago, etc.”

Another dealer told us that the initial move by Big River Steel to build their scrap inventory may push prices but after that their prices should be similar to David J Joseph (owned by Nucor) and Omnisource (owned by SDI).

A Midwest dealer told us regarding BRS, “[BRS] will impact all markets because of location of the mill. They will have to buy from scrap rich markets which should drive down supply in those markets.”

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