Scrap Negotiations Yield Higher Numbers Than Expected

Written by John Packard

The ferrous scrap market is heading higher. In a surprise to scrap experts (and probably the mills), prices are rising with some early deals done at +$20 per gross ton on prime grades and +$30 per gross ton on everything else. That is where Detroit settled earlier this week.

Steel buyers need to be aware of the higher than expected December scrap numbers. The higher numbers will provide cover for the domestic steel mills to raise prices further in the coming weeks. Especially with the expectation for even higher numbers in January.

Here is what one of our East Coast scrap dealers had to say about the market and the status of negotiations, which are ongoing:

“The market has started actively trading with mills having to chase the market higher than they expected they would. Some mills further inland may tell you that they are buying scrap at up $20 for prime and up $30 for obsolete grades, but I doubt they are buying much at those levels. As you get closer to the coast, shred is trading higher by $40/GT to $320-$330/GT. That includes the East Coast, Pittsburgh and Ohio Valley markets. The southern markets are still developing. 

“Interestingly, over the last several years, the Ohio Valley market has often had the highest delivered prices for scrap in the country, but the coastal areas are very close to those delivered levels, even for more local suppliers. Coastal shredders had in the past offered scrap into the U.S. domestic market, but today bulk and container demand is keeping that material closer to home and eventually headed overseas. No one really thinks there is much if any downside right now heading into January, and this is forcing the mills to bend over backwards to make deals. As one supplier mentioned today, there are lots of puckered behinds at the mills this month.  

“That the market is climbing higher in December and is expected to stay strong into January is not unusual. We will likely see normal seasonal flow and trading patterns in the first quarter next year, too. But what seems different this time is that this move higher is so strongly driven by export demand and increasing global activity both in Europe and Asia. There seems to be some sustainability to this move. I suspect that trading will continue for the remainder of this week as mills try to get ahead of a tighter supply and rising price situation heading into the end of the year.”

We also heard from one of our sources in the Ohio Valley who told us that prices are rising by $30 on primes and $40 to $45 on obsolete grades. He noted that many shredders have increased prices for feed stock by $40 per gross ton. There are concerns about inflows, especially with a stronger export market. Steel mills are scrambling to get enough scrap.

Mike Marley, scrap guru associated with World Steel Dynamics, told Steel Market Update the ferrous scrap market is still not completely settled. “The ferrous market still has not firmed up yet, and may not settle until later this week. The initial signs are that the demand is strong, and prices are and will be higher than the first Detroit area buys. A couple of indicators as I see them are that overall demand for scrap is strong here and overseas. This may reflect mills’ fears that they won’t get as much as they want or need this month. Dealers are saying they want higher offers and are content to wait until they get them. Does that mean selling less or no scrap this month? Possibly.

“Mill buyers and brokers recognize this, and some are thinking they will try to buy extra tonnage this month to avoid running short in the last week of December or first week of January. Also, that may enable them to resist or minimize dealers’ demands for even bigger price hikes in January. Pay $40 more per ton now, so the thinking goes, and avoid paying an additional $30 per ton again in January. 

“Those early increases in Detroit (up $30 on shredded and cut grades, up $20 for busheling) are what the bellwether mill, often seen as the price setter there, is paying its local suppliers. Its delivered price on shredded probably will be $300 per ton, up $30 from last month’s price of $270 per ton. Its busheling price will be $350 per ton and its P&S is $295. This has helped to narrow the price spread between busheling and shredded to $50 per ton.”

SMU will keep our eye on the scrap market because you can rest assured the domestic mills will go for more price increases if scrap is up $30 to $40 per gross ton.

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