Ferrous Scrap Prices Forecast to Drop $10 to $20 per ton

Ferrous scrap prices for October, which a couple of weeks ago were being forecast to move sideways (no change), are now looking as though they will drop $10 to $30 per gross ton.  The Midwest and Southeast are expected to see the least price movement while those areas associated with exports (such as the East Coast) will be hit harder.

The issue is not that business at the domestic steel mills is slowing. The issues are more international in nature as the U.S. dollar has been appreciating thus making U.S. scrap exports more expensive. But, it is not the dollar alone that is impacting scrap exports. According to a recent report from Mike Marley of MetalPrices.com, competition from cheap Chinese semi-finished steels (such as billet) have altered demand in such places as Turkey, one of the key importing countries of U.S. scrap.

Marley reported, “The weak demand in the Turkish market is troubling both U.S. and European scrap exporters. At this point, said one U.S. East Coast exporter, the Turkish scrap market is in a downward spiral and showing no signs of recovery. Like the Taiwanese, the Turkish steelmakers are facing stiff competition from Chinese steel producers, not only in their offshore steel markets but also at home. Cheaper billet and rebar from China has also cut into the semifinished export sales by Russian and Ukrainian steelmakers. They are responding by throwing cheaper billet offers at the Turkish mills as well in an effort hold markets closer to home and as a result putting even more downward pressure on Turkey’s imported scrap prices.”

One of Steel Market Update scrap sources on the East Coast advised us, “Ferrous scrap market dynamics are at an interesting place these next days, caught between very bearish sentiment outside the US and considerably less bearish sentiment for domestic markets.  My estimate at this point is that we shake out with lower prices for October, lower by $10-$15 rather than the more dramatic drops being talked about by some observers.

“The primary driver of negative sentiment overseas is an almost complete lack of demand for scrap due to much lower offers of Chinese semi-finished and finished steel. We have heard offers of billet offered at $480/tonne cif Turkey (or lower).  Add the $50-$60 cost to convert that to bar and back off the $200 or so spread the Turks want to have between the cif scrap price and you get a price target of somewhere around $340/mt or less.  Whether the Turks can buy scrap at that low of a price headed into the fall and winter is another story entirely but it seems reasonable that if the billet can actually be delivered into the Turkey and MENA, their need for scrap will be substantially less than it typically has been this time of year.  With iron ore prices looking to remain at current low levels, it does not seem like cheap Chinese steel will subside any time soon.”

Our source went on to speak at greater length about the domestic scrap markets, “The domestic front however is a much brighter picture.  Steel production and demand for scrap here remains robust.  With some export demand to compete with, I would expect October prices to be unchanged to even slightly higher than September.  Most people would concede that the lack of export options should lead to more supply domestically and a slightly lower domestic price.  But it’s October and we have seen sentiment get very bearish heading into October in recent years, only to see that sentiment turn around within weeks.  Does that happen this time too?  Not without some better demand for US scrap from overseas and that does not seem very likely right now.  The US exporters do have cargos to fill for part of October and not very deep inventories on the piers, but if they can’t get cargo sales later in October they will offer scrap domestically like they did last winter.

“So I don’t see the market crashing in October but with what is happening in the rest of the world the remainder of the year for scrap markets looks quite unstable, and it’s possible we could be on the verge of another sustainable move lower in scrap prices as we head into early-2015.”

Marley points out that demand in the South and Southeast is still very strong as steel mills and pipe foundries scramble to find enough plate and structural scrap to fill their needs. It is anticipated that the Southern scrap markets could see prices move sideways as they are not as impacted by the lack of exports as the Eastern and Ohio Valley areas of the country.

The new month does not begin until Wednesday of this week and the expectation is for negotiations to continue into the following week before we get final resolution.