Ferrous Scrap Prices Trending Higher in January, February

The January buy period saw ferrous scrap prices move significantly higher, lending support to recent mill price increases. While February is historically a down month for scrap, sources predict that February prices will be as high or even higher than January’s.

January ferrous markets ended higher by $30 per gross ton for obsolete grades and $20 per gross ton for prime grades, reports a dealer in the Northeast. The price increases were driven by better domestic demand, a strong export market and tighter scrap supplies at dealer yards, particularly for obsolete grades including HMS, plate and structural, and shredded. The spread between prime and obsolete scrap has returned to a more normal range of approximately $40 per gross ton from double that at times last year. “In many respects, it was a typical January buy period, and mills and dealers seemed to work out their business without an inordinate amount of acrimonious debate,” the dealer noted.

Even with the higher January prices, scrap supplies remain tight, especially on the East Coast docks, which were impacted by poor weather early in the month. “The latest export deals are in the $375 per metric ton range for 80/20. The next U.S. sales are expected to fetch at least $380 per metric ton. I’m not saying we will definitely see stronger prices next month, but I don’t see many factors that would drive prices lower in the near future,” the dealer added.

“Historically, prices drop from January to February as a result of increased flow and improving weather. However, this year consumers were successful in capping the January increase to a large extent by utilizing mill-owned yard tonnages and substituting prime scrap for remote shred. In February, excess prime scrap and yard inventories will not be available, which will push mills to buy more obsolete scrap. Assuming we see strong domestic demand and continued strength on the export front, it is hard to see how prices for these grades will drop,” agreed another East Coast dealer.

“Most dealers are already talking about higher prices in February,” agreed scrap analyst Mike Marley with World Steel Dynamics. Ferrous scrap prices rose by up to $20 per gross ton on busheling and bundles and $30 per gross ton on shredded, heavy melt, and plate and structural scrap this month. Difficult winter weather conditions that restrict supply, combined with strong overseas demand for U.S. scrap exports, are driving scrap higher. When temperatures dip below 20 degrees, it slows scrap collection and flows into the scrap yards, as well as deliveries from the yards to the mills. Freezing temperatures also form ice on the Mississippi and Ohio rivers, disrupting barge traffic in the Midwest. Railroads struggle to thaw switches and keep trains on time. “Dealers don’t produce as much, or they hold back, fearful they’ll offer too much tonnage and not be able to meet those commitments by month’s end,” Marley said.

Export prices continue to rise in both Turkey and Asia. Much of the focus is on Turkey, but there are other indicators of how strong overseas demand is and how it impacts supply in the U.S., Marley said. For example, Indian traders are offering as much as $360 per metric ton for shredded scrap loaded in containers free alongside a ship (FAS) at New York and northern New Jersey docks, and $350 per metric ton at Baltimore, Philadelphia and smaller East Coast and Gulf Coast ports. If domestic mills in western Pennsylvania and Ohio want to compete with those offers, they would have to pay $375 to $380 per ton delivered to their mills. The highest local prices are $355 per ton in northern Ohio with offers of $365 per ton to remote suppliers further west (Indiana and Illinois). The only grade domestic mills buy from exporters is shredded because the 80/20 heavy melt can meet domestic specs. Midwest mills can’t get any shredded from Eastern suppliers and are competing against each other in the Midwest, which adds to the upward price pressure, Marley explained.

The export markets show no sign of weakening in the near term, Marley added. Turkey, in particular, may have problems getting enough scrap from suppliers in the Ukraine and Russia, as well as those on the Baltic Sea (Finland and other Scandinavian countries) because of the colder weather.

“The mills may have tipped their hands this month,” Marley said. “Their brokers and buyers had no complaints about the higher prices and many were asking dealers if more tons were available. Dealers read that as a signal that the mills are busier or may be short scrap. It also helps when they raise steel prices by $40 per ton for sheet and $50 for plate!”

John Harris, CEO of Aaristic Services, reported that the winter market developed earlier than normal in December as mill utilization rates remained high, at round 74 percent. In January, prime was up $20 and cut grades of HMS & P&S were up $30, which put busheling at around $365 per gross ton and cut grades at $345 to $350, he estimates.

Scrap exports continue to be in high demand, both bulk scrap for Turkey and container scrap to India and the Far East. Turkey is buying in the $370 to $380 per metric ton CFR range for HMS 80:20, and is aggressively looking for February/March deliveries. Taiwan HMS 80:20 container scrap reportedly is holding at $343 per metric ton CFR, and rebar is selling at $602 per metric ton FOB. “This is caused by China’s high steel prices making steel exports from smaller countries more viable. This demand will continue to add pressure to current NAFTA scrap prices,” he said.

If the current cold snap continues, it will definitely slow down deliveries. Harris expects scrap prices to hold into February as mills have planned ahead and will have sufficient inventories built up to withstand delayed shipments if the cold weather persists. “Rail is always an issue in winter and will definitely incur more weather-related delays. This is further compounded by the added costs that rail companies are charging shippers that do not have their own cars. The scrap industry has always been treated poorly by the rail industry as they are only a small portion of their overall revenue,” he added.

Pig iron offer prices have risen with the scrap market, noted another SMU source. Most of the USA-bound pig iron comes from Russian and Ukrainian producers. Those offers are in the range of $385 to $390 per metric ton CFR NOLA, which is up $10 to $15 per ton. There is still availability for February shipment from Russia, but Brazil has only March shipments available from Northern Brazil, which is the preferred material, he said.