Ferrous Scrap Prices Poised to Move Up $30-$50

Steel Market Update ferrous scrap sources are advising us that scrap prices are poised to move $30 to $50 per gross ton higher for April deliveries than what we saw negotiated at the beginning of March. The issue is supply. The domestic sheet mills are having issues finding all of the tonnage they need and have been pushing for more tonnage as the month of March has progressed.

Recent sales to the export markets will assist in supporting higher prices to the domestic steel mills as negotiations begin early for April (due to ISRI conference in Las Vegas the first week of April). Two Turkish mills booked cargoes from U.S. scrap exporters last week and paid $232 per metric ton delivered for an 80/20 mix of heavy melt. At the same time West Coast containerized shredded scrap prices are now over $205 per metric ton.

Scrap guru Mike Marley of World Steel Dynamics reported earlier this week, “The export buying surge is a lose-lose situation for domestic steelmakers. First, it means the export yards probably will be raising their buying prices in the next week or two to gather enough scrap to fill those orders. One trader said the docks are now offering local dealers $150 per gross ton for heavy melt, but he expects that price to climb because they have little or no inventory. He also expects them to reach out to the bigger scrap processors who can provide thousands of tons of heavy melt. That would put the exporters in a bidding war with larger domestic steelmakers and not just the smaller coastal mills that are their usual rivals.

“Second, if they are selling more scrap to their offshore customers, they will have little to offer to the domestic mills in the southeastern U.S. that have been their steadiest customers. These domestic mills rely heavily on the exporters to provide them with shredded scrap and not heavy melt. The 80/20 export heavy melt fails to meet the specs for most U.S. mills.”

A large national scrap company told us this afternoon, “Market demand overwhelmed an already stretched supply heading into March.  As export strengthened, competition for materials further intensified well beyond the traditional trading window.  As we’ve discussed, the export tonnages remaining in the US during the past several months masked the weakness in domestic scrap collections and subsequent flows.  The tide has turned rather quickly and will have buyers scrambling for feedstock as early as next week.  Unfortunately, I suspect they’ll be disappointed as shippers will be content to focus on completing March orders and will be in no hurry to sell given pricing leverage heading into April.  The scrap supply chain will remain taught until the higher prices and better weather stimulate additional volumes.  In the interim, we’re going to see increased volatility and dislocations in the ferrous scrap markets.  As for pricing, this isn’t a market I would attempt to predict, lets just say, “The pendulum has swung.”

One of our East Coast scrap sources provided us his opinion regarding the support for major increases in ferrous scrap pricing over the next week to two weeks:

“For the first time in a quite some time, at least a year, we are looking at a very tight scrap market with major upward pressure on prices.  About one year ago, in April, May and June, we saw prices rise significantly from the lows they reached in February 2015 after the initial large drop from January levels.  Prices rose about $40-$50/GT over those months from the lows of early last year.  

Today, we are looking at a price increase of $40-$50/GT month-over-month from March to April, and it appears that the price increase is sustainable for at least 60-days if not longer.  Domestic scrap prices have not yet risen as much as foreign scrap prices, or even semi-finished or finished steel prices, which speaks to the sustainability of the price increase.  When these scrap price increases come next week and the following, the mills will use that to further push prices higher.  

But between mid-2015 and now, we saw another sharp drop in pricing later in 2015 which disincentivized many scrap collectors from collecting obsolete scrap and bringing it into yards.  So many yards worked through their inventories and did not replace them, and today inventories are very low or non-existent.  This is happening as demand for steel across the globe appears to be increasing a bit.  More specifically, we are seeing a potential shift in the availability of and pricing for semi-finished billet into Turkey.  That is going to force the Turks to buy more scrap than they did last year, which will change the scrap supply dynamic along the US East Coast.

Heading into April, I expect domestic prices to be up at least $40/GT.  Export sales are near $230/MT cif today, and will likely go higher.  Two cargos from the US have been sold this week.

That puts 80/20 steel at $180-$190/GT FAS east coast docks for now, which is $40-$50 higher than prices in mid to late-February.  So, domestic prices should follow.  Shred will continue to be the tightest grade with springboard prices for shredded well above $250/GTD US mills.  We are also seeing pockets of even greater strength in various regions in the US where the mills have not gotten all the scrap they ordered over the past few months.  As a result, I expect trading to begin next week (at least before the ISRI convention the following week).”

Our sources are also advising us that the supply of pig iron had recently decreased due to the low pricing. There were two recent transactions out of Brazil for pig iron to be delivered into New Orleans. A 70,000 MT lot was sold at $220 CFR NOLA and then another lot of 10,000 tons was sold for $10 per metric ton higher than the 70,000 MT lot.

Higher scrap prices, especially at the +$40-$50 level, would support further flat rolled price hikes out of the domestic steel mills. In SMU opinion, steel buyers should be prepared for the upward trend in flat rolled steel prices to continue over the next 30 to 60 days.