November Scrap Prices Expected to Increase by $10-$30

Written by John Packard

Steel Market Update scrap sources are advising us to expect ferrous scrap prices have bottomed and will increase once the November negotiations get underway next week with the domestic steel mills. We are hearing scrap prices should increase by a minimum of $10 per gross ton and some items could go up by as much as $30 per gross ton.

One of the major drivers is the strength of the exports markets which are seeing better demand out of both Turkey and Asia.

One of our scrap sources told us, “The export market is the single biggest factor affecting domestic scrap prices.   The arbitrage between scrap prices in Turkey and those in the states has increased approximately $40gt since Sept.  Turkish prices have increased by $25gt and US prices have dropped by the same.  US mills will need to raise prices in order to keep scrap from leaving our shores.”

Foreign mills are facing higher raw materials costs, especially for coking coal. This has pushed up their cost to produce pig iron and ultimately steel. One way to minimize the increases is to increase the amount of scrap being used in the BOF (basic oxygen furnace).

A scrap source from the east coast told us, “The consensus at this point is that the scrap market, apparently along with the finished steel market, have bottomed.  As to the former, scrap prices are higher now due to better export demand from Asia and Turkey.  The latest price for the 80/20 HMS mix cfr Turkey is around $235/MT.  Pushing that overseas demand, in large part, is higher blast furnace raw material costs, which are causing foreign integrated steel makers to increase the percentage of scrap in their melt mix, sometimes as much as doubling the amount of scrap they were previously using. 

“As a result of better demand for scrap form overseas buyers, we expect a pickup of at least $10/GT in early November, and probably more on the East Coast as the month goes on if we do not get more than that during the initial November buy.  Indeed, export prices on a cfr Turkey basis are up $25/MT from their lows reached over the past month.  Mills in the OH Valley have been short scrap as well, and will have to pay at least what they were paying in September to get what they need for November and December.  But otherwise, the further west you go, the more muted demand seems to be, and therefore scrap price increases there will be a little tamer as well. “

U.S. steel mills are buying less pig iron due to the increasing costs to produce while ferrous scrap prices are low in relation to pig prices.

One of our price sources for Brazilian pig iron told us, “There is very little BPI [Brazilian pig iron] being bought now by USA mills.  Prime scrap is cheap in relation to BPI and coking coal is making it more expensive so the gap in value in use is now widening. If they would buy BPI the price would be about $255-265 MT Nola.   With a minimum of $20 -30 MT freight up river it does not compete with bushel ing @ $200/GT delivered works.”

Demand has been “muted” although the recent price increase announcements created a bit of a surge in orders on Friday of this past week. We will have to wait and see if the orders cause the weekly production rates to rise in the coming weeks which will create more demand for scrap.

Our east coast source went on to discuss demand and what we should expect to see scrap do over the next couple of months:

“Overall demand is not spectacular still, even with what we hear are some sizable inventory restocking orders that the mills are going to get in the near term now that buyers see the pricing bottom is upon us.  So we expect the relatively plentiful busheling supply to be consumed by mills, which should, eventually, over the coming winter months put some of the premium back into the busheling to shred price.

“Obsolete inflows are off from where they were a month ago, but not quite as bad as they got last year.  Of course, finished scrap and steel prices have not reached those levels either.

“Over the coming months, keep your eye on the met coal price and overall blast furnace raw materials input costs.  They will drive scrap prices.  The longer it makes sense for the foreign integrated mills to consume more scrap, the higher scrap prices will go as we head into the traditionally slower inflow days of November and December, at least until we get some significantly firmer pricing under us.”

From the Ohio Valley we heard, “We will see the usual seasonal factors as we move into the winter months: lower inbound scrap flows, dealers holding scrap, etc.  However if mills need to reach out because of these factors it will be more expensive due to higher export numbers.   Opinions are that the market has $40-50gt in it before topping.”

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