Early December Scrap Negotiations Suggest Market will be Up $30-$40

Written by John Packard

Ferrous scrap prices are poised to increase to the domestic steel mills and negotiations are under way. The domestic mills did not cancel the open orders that have not yet been delivered which is a sure sign that they expect prices to be higher in December than what they negotiated in November.

A pig iron supplier told SMU. “I have heard the Chicago scrap market is trading up $30 GT across the board, but up $30 from what price last month? Many mills had to readjust their initial street pricing upwards to get their material in.  Many dealers have not completed their November orders due to lack of inventory and flow.  The mills are not canceling this time.  Flows have not improved much and with winter upon us, it will take some big Jan number to get enough material. 

“All in all, the market is up $40-50 GT for December shipment and the pickings are slim.  Export market is firm also with Turkish offers from USEC nearing $285-295 CFR.

“Nucor or SDI have bought Brazilian BPI at $325 MT CFR for January shipment.  Russian material is coming in at these levels and may go higher.  There is not enough production is N. Brazil and the USA mills need Russia and Ukraine as suppliers, no choice.”

One of the large national scrap companies shared their thoughts about market direction with the following:

“Early expectations have ferrous scrap up a firm $20-30/gross ton on obsolete grades and potentially even higher on prompt industrial scrap.  Primary drivers continue to be solid demand, particularly among the flat roll steel producers as both pricing and booking rates have meaningfully improved, and steady scrap export demand.  Given seasonality and shutdowns/holidays, December scrap supplies will likely be somewhat constrained, further limiting availability.  Adding to sentiment, the substitutes market (HBI, DRI, and pig iron) have appreciated considerably, rendering scrap a relative value even at these new price levels.  With domestic and global steel and raw material markets continuing to gain momentum, scrap will undoubtedly come along for the ride in the short run.  However, as we’ve grown accustomed, the sustainability of the rally will ultimately rest on end user demand, global steel/scrap/semis pricing dynamics, and currency trends.”

A scrap buyer in the Ohio Valley is quite optimistic about scrap pricing going forward:

“This market has some real pop to it.  Volumes in yards are down, so despite all the good news on pricing, yards have less to sell.  Interesting how that supply/demand Economics 101 works!   Steel pricing is blasting off.  4th price increase yesterday from the mills ($600), but futures indicate a $625-650 hot band market or higher.

“I think mini mills will print money at these levels, but a real supply shortage is coming, even without price increases.  Winter flows will be less than the last 6 months, and I can see a scenario where scrap pricing gets out of hand over the next 60-90 days.  Smart mills bought more than they needed in November, and will do the same in December, if they can entice sellers to blow out whatever inventory/flows they have.”

Another dealer located in the Ohio Valley and eastern markets told us, “Ferrous scrap prices will continue to rise into Dec through Jan.  World scrap prices are still significantly lagging both scrap substitute prices and competing hot metal input costs.  Prices to US export docks are rising as exporters look to fill sales at higher and higher levels.  Over the past few days international sales have paused (and that is the correct term) with general consensus that prices will continue to rise in the coming weeks after US domestic sales have been established.  On the domestic front most consumers I speak with are seeing much improved order books for 1Q17 as buyers are coming off the sidelines.  At this early stage in the negotiating process discussion is up $25-30gt however I would not be surprised if higher numbers settle as mills position themselves for the Jan market.”

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