Ferrous Scrap Prices Expected to Move Lower Again in August

Written by Tim Triplett

Ferrous scrap prices are likely to trade flat to down a further $20 per ton in August, following on a $20-40 drop in July, lending little support to the mills’ hopes to raise finished steel prices as the economy slowly recovers from the pandemic.

CRU Senior Analyst Ryan McKinley said stronger demand for scrap exports may help keep prices stable for obsolete grades, but prices for prime grades almost certainly will move lower as supplies grow amid renewed generation by automakers and other manufacturers. He predicts obsolete prices will be sideways to down $10, while primes will decline by $10-20 in August. “Whether or not obsolete grade prices fall next month depends on how much of that material is pushed to the East Coast for export and how much inbound flows have been affected by a decrease in scale prices. Demand for scrap has not weakened overall month over month, but there is a chance that supply outpaces demand and prices come off a bit in August,” he added.

The combination of stronger export prices, lower inbound scrap flows, and a slight increase in steel/scrap demand should have a bottoming effect in the ferrous market for obsolete grades in August, said a dealer in the Northeast. Export prices and demand have steadily risen over the past month. This will force domestic mills to match prices to keep scrap flowing in their direction. July typically sees inbound flows decrease and this year is no exception. Flows into the shredders are off with many having trouble completing July orders by month end. Many mills are reporting an increase (although not by much) in scrap consumption in August and will be viewing next month as the bottom of the market. Prices for these grades in August are expected to be sideways to slightly higher. Primes, on the other hand, are in ample supply. Prices for these grades are expected to drop $20/GT as mills attempt to maintain margins, he said. 

“It seems that prime pricing is under pressure as demand isn’t great right now and supply has recovered from its lows in May. So, primes will drop about $20/GT,” said another scrap executive.  “For shredded and HMS, the rising export markets on all coasts are keeping those grades steady, and eventually up, if export demand stays strong.” Looking further ahead, he expects scrap prices to strengthen in September, aided by furnace restarts that will boost demand. “If this scenario plays out, the mills will barely cover their needs and September should firm up. Of course, the virus is the wild card.”

Another SMU source said he believes the August domestic market will be stronger than conventional wisdom suggests. “Prime grades will be weaker than obsoletes, but I expect obsoletes including shredded to be sideways at worst and probably up a bit. That should limit the downside of prime scrap. Flows have been weaker in July due to the domestic price drop from June, the hot weather and materially stronger export demand.”

Commenting on pig iron, one exec said China is controlling the market. “The Chinese keep buying not only from the USA’s first choice suppliers in CIS/Russia, but also in South Brazil at prices the U.S. mills don’t want to pay, given the prices of domestic scrap. Poor domestic steel demand is the only thing allowing the EAF mills to hold down steelmaking input costs. China is buying at prices $25-30/MT above what U.S. buyers want to pay.”

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