Ferrous Scrap Prices Poised to Move Sideways as we Get into April Negotiations?

Written by John Packard

There is no joy in Mudville in the middle of March, the scrap market is dead and no mills are looking to add to their inventories. For that matter the dealers have very little to offer as the weather has yet to clear up north and the big move lower in scrap prices in February are making those tearing down buildings have second thoughts.

Our scrap sources are advising that there should be little movement in ferrous scrap pricing as we move into April. We may see a few dollars here or there, especially on prime grades like Busheling and bundles which may have over-corrected in early March.

We heard from scrap guru Mike Marley of fame who told us in an email earlier today:

“I don’t expect any dramatic moves either up or down in prices.  The spot market in ferrous scrap is dead, no mills are looking to add to their stocks this week and dealers say they have nothing to offer at this point.  What I’m hearing at this time is that some of the mills and brokers are sounding out dealers to gauge how much tonnage they will offer in April.   The overriding issue is domestic steel demand and whether steel mills will be buying more scraps because they are getting more orders.   You have a better handle on that.  Thus far, I’m not seeing much of a rebound.  Steel imports are high, inventories at service centers are high and flat-rolled prices are still inching down.  That does not point towards any dramatic spike on scrap demand in the next month.  If anything, I think prices are likely to be sideways to down slightly, say, $10 per ton, but it will be in isolated pockets of high and low demand much as we saw this month.  Chicago is the weakest region in terms of scrap demand and prices while the South may be stronger because supplies are tighter there.”

One of our dealer sources on the East Coast capsulated the scrap story for Steel Market Update this way (understanding that nothing is happening yet):

“First, the market for now has bottomed because inbound flows remain very weak and a good part of the prime scrap glut that we have experienced over the last several months has decreased.  Flows are still weak in part because the expected spring flows are not arriving yet, there are not a lot of large demo jobs which have begin yet (and some are under review because of the collapse in ferrous scrap values over the past 90 days), and the psychological impact of a longer term lower market has not been completely absorbed.  So I am not a real bull for April but also certainly not a bear.  

“Second, the fundamental demand dynamics of the ferrous market remain unchanged.  Demand in the OH Valley and in the south remains weak, in large part due to the withdrawal of mills serving the OCTG and drilling industry from the scrap markets.  Finished inventories and imports, while declining, remain elevated.  The dollar is still running stronger, which is facilitating imports of scrap, pig iron, and finished steel, and more importantly keeping exported scrap from the US very depressed.  

“At this point, dealers are anxious to see how much their flows into the spring pick up.  More than the price collapse, volumes are off significantly from last year’s levels which is making generating enough gross profit to cover overhead nearly impossible, practically speaking, that more than anything else has really hurt the dealers this winter.  

“At the end of the day, we expect demand to get better over the next several months, and for prices to increase somewhat.  But no one I am talking to expects pricing to return to where it was last year.”

Mike Marley shared some thoughts about scrap collection (inbound flows of new obsolete scrap) with SMU that I found very insightful:

“How significantly obsolete scrap flows will rise is the big question.  If you listen to the mils and their brokers, they are sure a tidal wave of old cars and appliances will flood the scrap stream in the next month or two.  Intake will rise as it usually does, but I don’t think it will be as much as some expect.  The smaller peddlers, the guys who dumpster dive and come to dealers’ yards with their pickup trucks loaded with a potpourri of scrap metals are already showing up, but they are a small part of the trade.  The auto wreckers will sell some junkers, but they will also hold back cars hoping that prices will rise.  They operate like scrap dealers:  They will sell based on the current flow of material coming into their yards because they have bought it at lower prices and can make money off it.   It isn’t quite last in/first out or first in/first out, but a unique variation on that principle.  They will hold onto a newer wreck that can still yield some valuable parts to the car repair shops and shade tree mechanics.  The old 1980 Chevette?  It will be picked clean of its radiator, catalytic converter and other easily resold parts, then it will be flattened and shipped to a shredder.

“But more importantly, the material from demolition work will remain weak.  The demo jobs that are being done because they are tearing down a building or a bridge to replace it with a new building or bridge will continue.  But the large and long-term takedowns like those at Sparrows Point and some older factories may stall.  The steep drop in scrap prices in February may force some demo contractors to rebid contracts or go back to the building owner and say we can’t make any money on that scrap, you may have to pay us to tear it down.   What will the owners say? I believe many will reply, ‘Talk to me next year and we’ll see where prices are then.’”

For now, Steel Market Update understands that the results for ferrous scrap pricing in April will be “mixed” depending on geography. Most believe prices will track within a fairly narrow range (+/- $10 per gross ton) from where the product traded at the beginning of March. We are not expecting any big swings in prices one way or another.

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