Ferrous Scrap Prices Forecast to Drop $10-$30

As we approach the end of January the expectation is for the domestic steel mills to cancel any remaining ferrous scrap orders that the yards have been unable to ship due to the weather, shortage of trucks or rail cars or just due to the dealer(s) being unable to complete the order on time. The steel mills expect ferrous scrap prices to drop by as much as $30 per gross ton.

Flows of scrap into the dealers yards have been less than anticipated. This has created a situation where mills may not get all of the scrap they purchased for this month. Mills have a decision to make – cancel orders when they may be short of scrap to run their mills – or allow the yards to ship much higher priced scrap since the market is projected to move lower.

 

The situation varies by region with the east coast having plenty of scrap due to exporters not moving much material to Turkey right now. The lack of exports pushes material meant for Turkey into the domestic markets.

 

As we move into early February the expectation is for ferrous scrap prices to drop by a minimum of $10 to as much as $30 per gross ton. The mills are talking the market as being down $30 while a number of the scrap dealers are not quite as pessimistic. The consensus of opinion at this moment is to expect a $20 per gross ton reduction in pricing.

 

Here is what one of our scrap sources had to say on the subject earlier today:

 

“The mills which normally cancel will probably cancel this time too.  They don’t have anything to lose by canceling.  What they can buy the scrap for in February is another story though.  Flows in January were not great, and normally they are pretty strong because people think it’s a good month to sell scrap.  Taking the market down dramatically in February will stem the flows significantly.

 

It’s a very tough market to call.  There is a lot of supply – theoretically – because of the export situation.  But practically, mills need scrap now and it’s not clear who has it and when the mills can get it. So I am not convinced that we are down a big number like $30.  Certainly, the further west you travel, the less weak the market is.  People in the Chicago and even Pittsburgh / Cleveland market are talking down $10, maybe $15.  But it’s premature to make any real calls yet.”

 

A second SMU scrap source told us, “…Down $20-$30. Even cold weather can’t stop this [erosion of pricing].”

 

If prices do drop by as much as $30 per gross ton this will put pressure on the domestic mills – especially the mini-mills who use electric arc furnaces (EAF’s) to drop prices to their customers. From the mill perspective if they can hold on to the gains they get out of scrap during February it will improve their margins. We will have to wait and see which way the shoe drops come February.