Early Reports Have Obsolete Scrap Sideways While Primes Down $20

Warning: You can drown reaching for the bottom…!

Steel Market Update (SMU) is learning that the ferrous scrap deals which were done earlier this week in Detroit and in northern Ohio were done at sideways pricing on obsolete grades (such as heavy melt and shredded scrap) while primes grades (Busheling/bundles) dropped $20 per ton. However, as the week progressed some of the weakness was eliminated and prices moved sideways (and we even heard of some up $3-$5 per gross ton on obsolete grades).

A large scrap company shared his thoughts on the market with SMU this afternoon, “The scrap market continues to ebb and flow.  While some early transactions occurred at down money, the market firmed throughout the week landing at sideways by the time things settled.  It appears the scrap export volumes that had been directed into the domestic markets during the past few months are being redirected into the international market, crimping obsolete supplies.  Despite any substantive improvement in the order books, mill demand was robust as they positioned to average down costs of current raw material inventories and imported ore-based metallics purchased 30-60 days ago with cheaper domestic scrap.  There seems to be some sense that Q2 mill operating rates will recover as domestic steel prices become more attractive and we enter the construction season.  It may be betting on the come, but as a wise man once said, “You can drown reaching for the bottom!”

Out of the east we heard from one of our scrap sources, “We are seeing much of the same in the east and OH Valley. Obsolete grades are sideways and primes are down $10-$20/GT.  The market has clearly firmed up on obsolete grades due to a lack of supply.  Unfortunately for scrap dealers, demand remains weak as well.  Several large consumers like Timken, Mittal, and USX had reduced buy programs, while the mills that sell into energy industry had practically no buy programs at all.  SDI and DJJ bought scrap which helped underpin the market.

“No one I speak to sees things getting much better over the next month or two.  Most feel like there will be a recovery in the second half of the year as the domestic finished price stays closer to the global price and import and existing domestic inventory is absorbed.  Winter weather and the sharp price drop have really wreaked havoc on supplies, and the strengthening US dollar has invited prime scrap into the US from Canada which has put continuous pressure on prime grades.  

“I don’t expect much change for obsolete grades heading into April.  We could see another push lower but not until the weather improves collection rates.”

Although we are not aware of any new pig iron deals it appears that the $268 per metric ton deals are gone. The most recent Russian offers are more expensive at approximately $280 per metric ton. We are hearing that no deals have been done on the Russian yet. At the moment Ukraine is shut down.

We advise caution and to heed the words of our first scrappie and don’t drown reaching for the bottom…