Ferrous Scrap Markets “SICO”

Scrap prices are falling across the country as the August numbers begin to settle. In most regions we are seeing prices down $20 to $30 per gross ton. However, depending on the starting point, numbers are down more than $30.

The other development is the numbers in the South are now more in line with those of the Midwest/Ohio Valley.

Earlier today Steel Market Update was out canvassing our ferrous scrap sources in order to understand where scrap prices are headed for the month of August and then in turn how scrap may influence flat rolled steel prices over the next 4 to 8 weeks.

Rich Brady, Executive Vice President of OmniSource has coined an acronym which best describes the current steel and scrap markets: “SICO” (pronounced either sick-o or just sick). Here is how he explained it to SMU this morning:

“The scrap markets appear to be settled for the most part throughout most regions.  The best description at this point is capitulation.  Mills and dealers alike are under tremendous pricing pressure and market forces are responding.  We experienced down $20-$30/gt across most grades…
 
Summarizing, you’ll recall the acronym “BRICs” describing the commodity boom at the turn of the century.  I’ve coined a new one for the global steel and scrap markets, “SICO” – Subsidies, Imports, Currency manipulation, Overcapacity.  The markets are truly “sick”, but the players with the strongest immune systems, read “conversion costs,” will recover.”

We are hearing from some of our sources that August may well be the bottom of the market. One of our East Coast scrap dealers told us, “I can’t see how the market can go down more. I can’t see what would drive it lower. But, I have been wrong before….”

Another source told us, “The market has bottomed and these prices are not sustainable and flows are drying up. Scrap has been trading in some areas at 2009 levels since March. Prices make no sense either. P & S is selling at a premium to Busheling in Detroit.”

We also heard from another source that the impact of these lower buy prices on scrap has not impacted flows into the scrap yards. We were told, “Not yet, it may happen, but this is overplayed in the press.”

A large dealer in the Mid-Atlantic/East Coast area told us their flows were good, even with the change (drop) in what they were paying for material “across the scale” into their yards. This dealer pointed out, “Steel demand is still not great and the market is range bound and I don’t see that changing much.”

In the Southern, East and Midwest markets prices were reported to be as follows for various grades of scrap:

#1 HMS at $225-$235 per gross ton. On the East Coast we heard HMS numbers as low as $200 per gross ton.

Pig iron is being reported as being bought today at $248-$250 per metric ton CFR NOLA (New Orleans) from both Russia and Brazil.