Ferrous Scrap Prices: Little to No Increase Expected in December

After rising in October and November, ferrous scrap prices are expected to move sideways in December with the possibility of a small $10 per ton increase for some grades. But weakness overseas complicates predictions longer term, say Steel Market Update sources.

“December is generally a month when scrap prices rise,” said CRU North America Steel Analyst Ryan McKinley. In the past five years, the increase has averaged $16 per ton. “But this year I think the upside will be limited.”

Winter has already hit areas of the Midwest and Northeast, impacting scrap flows and tightening supplies. Mills that need material may have to pay a bit more. “All said and done, though, I think mills will try to hold the line at sideways in anticipation of further price increases in January as some try to work down inventory levels before the end of the fiscal year,” he said.

McKinley sees a strong relationship between scrap prices and mill capacity utilization rates. Over the past five years, a 1 percent increase in utilization rates has correlated to about a $15 per ton increase in scrap prices. Production rates increased by nearly 2 percent from October to November, which theoretically should signal a $30 increase in scrap. “I don’t think the fundamentals will bear that trend out,” he said, “but it may drive prices higher than expected right now.”

The scrap export market has weakened this month by about $10 per ton, with fewer bulk shipments off the U.S. East Coast to Turkey, which also will help to cap any price increase in December, McKinley added.

Scrap demand remains seasonally strong thanks in part to more mills coming on line in the Midwest and the continuously elevated mill operating rate. But the upside to pricing remains limited because of weakness overseas in Turkey and Asia, said a dealer in the East. “As we get into the middle of January, this weakness could further penetrate the domestic market if flat rolled prices in the U.S. don’t stabilize and overseas prices continue to fall,” he said. 

“With China in a downdraft and looking to export more steel and scrap, they are directly affecting Turkey’s export market for steel (now in $500/MT range). This is affecting scrap exports from NAFTA with lower prices and volumes. As scrap prices decline, steel markets in the U.S. will follow suit, even with high mill utilization rates in the 82 percent range,” said John Harris of Canada-based consulting firm Aaristic Services Inc.

The export market is teetering, observed another dealer in the Northeast. “The international ferrous market is on the verge of a big correction, down $20-30 by year end,” he predicted. With its economy slowing, China will offer cheaper scrap, rebar and billets to the world markets. This will force down prices in Turkey and in turn impact U.S. export numbers. “So, I think we will see sideways prices initially in December, with some exceptions for grades like bundles and busheling. As the month progresses, mills will probably try to get ahead of January and start buying TBD, which may bring higher prices by month end,” he said.

Another source tells SMU that the Turkish mills are facing intense competition for rebar orders in the Mideast and Far East, lowering what they are willing to pay for scrap. This has caused scrap exporters in Europe and the U.S. to reevaluate their sales levels to Turkey. One large exporter recently concluded a Turkish deal for HMS at $329/MT CFR, down from $341 on Nov. 8. Shredded is higher priced and not expected to completely follow suit. “Quite frankly, the outlook in Turkey does not look good going forward. It has caused the U.S.-based mills to rethink their buying strategies for December, seeing how export has floundered. I am not sure how this will affect the January market, which has risen seasonally for most years and was expected to do so again,” he said.

The good news is that demand for scrap is quite widespread in the U.S. as the mills’ 82 percent capacity utilization is keeping the market firm, he added. “We have not seen this level going into winter in quite some time.  So, the scrap market is in no danger of any decline until February at the earliest.”

He described the pig iron markets as stable. With scrap exports on the run, the latest purchase prices for pig iron at $385/MT CFR NOLA should hold or drop a bit. “The U.S. is the only sizable market available for CIS/Russian pig iron production, so that limits their leverage on buyers unless scrap prices take off,” he said. “At $385/MT CFR, the delivered mill cost equates to approximately $410-415/GT, which is not that much higher than #1 Busheling, currently at $400-405 GTD.”