Ferrous Scrap Prices to Jump by How Much & Why are the Questions

The rumors about March ferrous scrap prices have been flying ever since prices rebounded early in February from the initial down $10-$30 per gross ton we saw in the early negotiations. As the month of February continued scrap prices rebounded and, in some cases, returned to levels seen in January. As we prepared for March negotiations our sources advise how they see market prices developing and what will be the key drivers to scrap pricing.

We heard from one of our sources located in the Ohio Valley, “The driving factor in today’s market is the lack of prime scrap which is due to; high demand, Nucor’s unexpected shutdown of their DRI plant, Big River start up and very low availability of pig iron.  Prime scrap will undoubtedly move up $45gt +.  If mills are unable to buy primes they will substitute with shred and plate increasing demand for these grades.  Also, melt shop software or “optimizing” programs may increase shred consumption if the discrepancy between prime and shred prices exceed current parameters. Adding to this are rising export prices with current offers from the US exporters reportedly over $300 CFR for HMS.  This is already $40-50 higher than February lows.  The majority of dealers sold all their stocks in Dec/Jan with very few having excess tons moving into March.  Seems like we will see prices exceed January levels and, in my opinion, these new levels will continue through April.”

A pig iron source told us, “The USA scrap market is surging as mills are still trying to buy scrap offering up $15-20 gt from early in Feb.  However, dealers are short and they are still trying to cover their January February sales.  Sheet mills have a tremendous appetite for prime grades and those grades are in short supply due to the automotive cutbacks.  Also, Canadian dealers are shipping to Canadian mills rather than to US Mills as they have been doing for the last several months.  There are shipments coming in from Europe and that will mitigate the shortages of those grades but nevertheless the market for prime grades should be up by $40-$60gt.  We have heard prices has high as $385 fir busheling already.

“All regions will be impacted by the surge in demand in a scrap short market.  Maybe the NE coast will be a bit cheaper than the Ohio valley and Detroit.  The south will be competitive especially with Big River in with both feet.  Also, the DRI is in short supply and there’s no HBI coming in anymore.  Of course the mills could buy more pig iron.  The current price is about $350 gt cfr Nola and if you ordered from Brazil today, it wouldn’t ship until July.  The Ukrainians have some logistical difficulties and this will impede their exports and the Russians are raising their prices.  So, no help there for US Buyers.

“So, when you hear mills and their brokers saying the March is only going up $30, you have to view this as wishful thinking.”

An east coast shredder explained the market to SMU this way, “Right now, the expectation is that markets will revert to at least and probably surpass January price levels for obsolete grades.  Prime prices will be much stronger than January levels.  

“Export demand is, as always, the main wildcard as prices for shredded overseas are around $285-90/MT currently.  I am not sure if they will go much higher – a bunch of Baltic and EU cargos have traded recently – and if they do how much higher they can go.  So the question is at what price will the exporters offer shred into the domestic market.  Whatever that number is, it will cap the market at least temporarily.  The next questions are how much scrap are the exporters offering into the domestic market, and when will the mills actually get it?  The last time export shred was in this price range (actually it was slightly higher) was January.  Hence the initial thought that we return to January prices for shred give or take.

“But…there are some other unique variables at play here.  Prime scrap is considerably less available than it was at the beginning of the year, pig iron and DRI from Nucor are effectively not available at all.  The utilization rate is better today, and at least one major mini-mill is really, really short inventory.  Mills will need to fill those supply gaps with shredded.  The next question then becomes can the exporters realistically fill that shortfall, and I am not sure of the answer to that.  Some mills can’t afford to take orders for which the scrap will not ship quickly.

“So, I think we are looking at prime prices up at least $40/GT from January levels, but my guess is that obsolete grades will likely be up $10-$20 from January (think $330-$340 for Ohio shred).  The upside risk from those levels is greater than the downside risk.  Some offers are already being traded but I imagine buying to develop early-mid next week.”

Mike Marley of World Steel Dynamics reported his opinion regarding scrap prices to SMU over the weekend, “Yes, I think the expectations of more than $50 are over-done.  Such huge jumps usually bring a turnaround the next month, up $50 or $60 followed by a down $50 or $60 the next month.  Such swings are crazy and a lot of dealers end up on the losing end in these instances because they may still owe mills scrap at this month’s price, fail to deliver by the end of February and will have to fill those old orders at the lower price.  But they have to pay higher prices on many of their industrial accounts next month.  It’s crazy. The mills probably would live with a $40 hike.  They’ve posted increases of $30 for sheet products and could give up another $10.”

The domestic steel mills, led by Nucor, took flat rolled prices up by $30 per ton this past week and, in doing so, verbally told their customers that there would be additional price increases should ferrous scrap prices rise by more than $30 per ton. As you can see by the comments from three separate markets (above) the posturing by scrap dealers is for prime grades of scrap pricing to hit or exceed $40 per gross ton due to limited supply and a high demand by the sheet mills.

Obsolete grades have less clarity at the moment and prices will most likely be impacted by exactly how much busheling and bundles (prime grades) are available to be sold and shipped in March.