Scrap Outlook for July: Sideways to Maybe Up $10

Written by John Packard

A little more than a week ago, Steel Market Update spoke at a Bank of America Merrill Lynch dinner in Chicago. In the audience were a couple of scrap companies who told us the mills in the Chicago area (ArcelorMittal in particular) have come back into the market to buy scrap after a lengthy absence due to excess inventories, taking down a furnace or two in the region and a short order book.

There has been some early trading in scrap in the Southeast and Ohio Valley, according to Pricing, which was expected to rise $10-$20 per ton was reported as transacting at the same levels as June.

However, the majority of July scrap trading won’t be done until late this week or after the 4th of July Holiday weekend. The expectation at this point is for sideways pricing on most grades to slightly higher on prime grades such as #1 busheling.

Supply continues to be a concern as collections have not returned to where they normally are at this time of year. This could pressure prices.

On the other side of the coin is the weakness expected in the export market where prices are under pressure from Chinese and CIS billet prices into Turkey. There needs to be enough of a spread between billet and scrap prices for the Turkish mills to buy scrap.

One of our East Coast scrap sources provided SMU a look at their market from their perspective:

“I am seeing a mixed bag for July at this point.  Continued solid demand for scrap among the domestic steel makers, would with other factors staying the same as they were in June, likely push prices higher across the board.  But that good domestic demand is being offset by weaker foreign markets now, which continued to be impacted by declining billet prices delivered out of China into Turkey.  Reports have billet offers into Turkey today at anywhere from $335/MT to $360/MT (out of the CIS).  With that said, you can’t have scrap sold into Turkey at $285/MT+, which is where pricing got to (actually it got to $290/MT+) after the last Turkish buying binge in May.  

“Steel makers in Turkey will buy scrap when they need it, but buy less when the scrap to billet spread is very narrow (say $50-60) versus ($80-$100).  So that would mean scrap may have a $20 or so retrenchment coming for overseas sales at some point in the next month or two.  It could be more depending on actual demand and US collection activity, or it could be a bit less.  In addition, it’s been a while since the Turks bought much, and word is their scrap inventories are dwindling.     

“With all that said, however, the question for the US market is at what point it becomes more attractive to the big volume exporters to ship to domestic consumers versus collecting and shipping scrap overseas.  I don’t think we are going to see an abnormal volume of that in July because scrap supply has not been overabundant.  That factor should underpin the US market when it begins to trade a little before the holiday but more likely the week following.

So at this point, I think we are going to see sideways prices for obsolete grades with perhaps some slightly better prices for prime grades because of supply constrains and some reduced manufacturing coming up next month (so we could see July prime prices up maybe $10).”

Steel Market Update will continue to follow the negotiations and will report later this week or early next week on where the market pricing settles for the month of July.

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