Have Ferrous Scrap Prices “Bottomed”?

Over the weekend we received further updates on the status of the ferrous scrap markets in the United States.

We learned that US Steel Granite City had no scrap buys in July and we are hearing that they are passing on offers that are $30 to $45 per gross ton lower than their last buys (prior to July). We will want to watch Granite City to see if USS is perhaps targeting this plant for something or if they are preparing for a labor issue. SMU does not know and both suggestions are nothing more than rumors at this point. We did hear that the other US Steel mills did buy scrap for August.

Both ArcelorMittal Chicago area plants and Cleveland bought steel for August.

We also heard from one of our scrap dealer sources that the market started to see price resistance from sellers as we approached the end of this past week. Here is what we were told:

“Hi John – a few words about where ferrous scrap markets are today.   

Despite another month-over-month drop for the August market, we saw a significant amount of resistance from sellers as the buy period wound up at the end of last week.  While mills were initially able to buy some scrap at prices that were down $20-$30 from July levels, it seems that they ultimately probably did not buy as much as they wanted to buy in August.  

Prices have come down so far, really over the last three years, that we are starting to see peddlers – those people at the bottom of be food chain who have regularly brought 500 or 1,000 lbs of obsolete scrap to yards every day deciding it’s just not worthwhile to continue to do so at current price levels.  I would not say it’s a complete collapse of that collection system, but we are seeing less scrap available than we were even a year ago.  That has almost everything to do with current price levels.  So it makes sense that we would see dealers resisting mills trying to push through another price drop.  They can’t replace what they are selling at lower and lower prices.    

I am not suggesting that we have ultimately seen the lowest ferrous scrap prices we will ultimately see during this down cycle.  But we may be at this level for some time to come.  We are still dealing with plentiful iron ore, imports both here in the U.S. and out of China to other Steelmaking regions around the globe, and lower and lower oil prices (which are killing the tubular steel industry in this country, and thus a major source of scrap demand).   None of those factors is likely to change any time soon.   

Prices for shredded ranged from $230 in the Philadelphia region due to weak export demand, to $235 in Chicago, $250 in Cleveland and $245-50 down south.   Prime scrap traded for around $250 in Chicago and $255 down south.  By the end of the trading week, we saw mills come back and pay higher prices for more scrap they could not buy earlier in the week.  

At this point I don’t expect September to be any lower than where August ended.  And if inflows remain tight as they are now (and I expect they will), I would expect these pricing levels going forward for at least the next few months.” 

Scrap is the primary ingredient for the mini-mills (electric arc furnace mills) and changes in pricing impacts their cost to produce. It also has an impact on integrated mills only to a much less degree. Will lower scrap prices keep the lid on steel prices rising – at least until we find out if there is going to be a labor issue at USS and ArcelorMittal once the contract expire?