Ferrous Scrap Drops $30-40 Per Ton in September

Following on a small $20 increase in August, ferrous scrap prices for September are down $30 to $40 per ton as U.S. mills adjusted to lower demand and planned for upcoming fall shutdowns.

“Prices fell this month amid a confluence of factors including ample supply, a weakening export market and mill outages,” reported CRU North America Analyst Ryan McKinley. “The oversupply became apparent to mills in mid to late August due to the volume of shred still on offer to them.”

The shredded scrap price (delivered Great Lakes region) is at its lowest level since November 2016. The premium paid for prime grades has been squeezed for most of this year, as #1 busheling now only holds a $10 premium to shredded scrap. This is the lowest this premium has been since April 2018 when Section 232 tariffs were put into place, McKinley noted.

Looking ahead, he sees little upside for prices in October. “Even if lower prices crimp flows into dealers’ yards, there are a few outages still set for next month that will keep a ceiling on demand—not to mention further downward pressure on steel prices. Weak demand for Turkish steel means an export-driven recovery for U.S. scrap is unlikely. The next upswing in price will likely be driven by seasonal factors in December or January, depending on weather conditions,” he added.

Scrap prices in the Ohio Valley dropped $30 for obsoletes and $40 for primes, which was a larger decline than the trade expected, reported a dealer in the Northeast. “Falling steel demand in all industry segments was accentuated by numerous mill maintenance shutdowns announced over the next 60 days,” he said. “While the export price drops were not enough to draw scrap from the coast into the domestic market, it offered nothing positive for the scrap suppliers to hang their hats.”

Prices on both domestic and export have continued to soften over the past few days, he said, with domestic shred prices now being quoted down $45-50/GT in several regions of the country. He estimates prices in the Ohio Valley at: Shred $250-255/GTD; HMS $220/GTD; P/S $245/GTD; and Bush $270/GTD.

“Finished steel demand forecasts through October are flat at best, and unless the flow of scrap into dealers’ yards subsides, scrap prices should continue to drop,” he said.

In the months to come, much will be dictated by whether export sales begin to stabilize, noted another Steel Market Update source. If they do, exporters won’t have much incentive to offer large volumes of scrap to domestic mills. Current CIF prices for 80/20 are around $245-250/MT, which should be attractive to Turkish mills if they can sell rebar for $425 per ton FOB, he said.  

“Scrap demand in the U.S. is expected to remain muted for the remainder of 2019 without any uptick anticipated until yard flows slow so much that we get a short squeeze. Shredder feed prices are already at their lowest point since the fall of 2016. Despite all that, I expect October to trade sideways to soft sideways,” he said. 

Observed another steel executive: “There will be scrap trapped in Chicago next month due to Mississippi River lock closures, and the mills will take advantage of this situation beyond the point of damaging the collection system. They have never missed an opportunity to do so. It has not really caught up with them yet since there is no dealer resistance these days. But in the future, with all this new EAF capacity coming on, they may want to think about it.”

The pig iron trade is stalled for now, with the last USA buys in early August in the $360-365/MT CFR range, the exec reported. “This price is not attractive to U.S.-based buyers since the delivered cost of this BPI is about $400-410/GTD and busheling is now $270-290/GTD. So, the mills are choking on this material. They want to lower the buying price by at least $50/GT, but the suppliers are thinking only $20—and begrudgingly. There is little question that BPI has temporarily lost its casual correlation to prime scrap. The mills want to reestablish it, but it won’t be easy since they have to have it in their mix to produce decent HRC.”