Scrap Prices Drop for October: Are We Near a Bottom?

Steel Market Update ferrous scrap sources advised us over the weekend that scrap negotiations have wrapped up between the dealers and the domestic mills and that steel mills, once again, have walked away the winners as scrap prices dropped across the country. However, the weakest areas are those furthest away from the east coast where exports have helped keep the losses less pronounced due to a strengthening ferrous scrap export market. The question going forward is: have we reached the bottom for ferrous scrap and will prices moderate or rise from October levels?

A representative from one of the largest national scrap companies provided SMU with an overview of the trading in an email on Friday, “The scrap trade wrapped up late yesterday afternoon.  It was relatively slow to develop, however as buyer’s programs were limited and scrap processors were nervous about flows.  In the end, secondary grades were off $15-20/gt [gross ton] while prompt industrial was down $25-30/gt.”

An East coast trader reflected on the week’s negotiations and reported to us, “October trading was generally wrapping up as we ended the week, and market sentiment seemed to be improving on the back of stronger export pricing and the inability of mills to lower prices as much as they wanted on the east coast and in the OH Valley.  The farther west you went, the weaker markets were, which reflected the reduced domestic demand and lead times.

“In the Mid-west and Southern regions, prime prices fell $30/GT [gross ton] while most obsoletes including shredded dropped $20/GT.  Those drops put prime scrap prices around $210/GT and shredded scrap around $200/GT.  In the OH Valley, primes were down $20/GT, but shred was down about $15/GT to around $205/GT and later deals for cut grades were down only about $10/GT with some mills that service the energy sector seemingly left without being able to cover all their needs for cut grades of scrap.

“On the East Coast, bulk export sales trended $7-$10/MT [metric ton] higher over the course of the week as several cargos were sold to Turkey.  Container scrap demand remained strong as well, with FAS prices for shred reaching $205-$210/MT depending on the port of export.  That demand will take much of the supply in the coastal port areas out for the month.  We expect additional bulk export sales at higher prices going forward.  Inventories in the coastal yards are not deep.  We also think that higher met coal prices will ultimately lead to higher billet prices into Turkey in the near term which will continue to make scrap more attractive to purchase than billet.

“Because of the export effect, East Coast mill prices for shredded scrap fell only about $15-$20 and $10 for other obsolete grades despite one mill not buying at all and the other two mills having significantly reduced buying programs.”

From the Ohio Valley area we heard from one large scrap dealer, “Generally speaking the markets are stronger the closer you get to the east coast.  While we are seeing drops of $30+ for primes and $20 for obsolete grades In the Midwest prices on the coast are sideways to down $10.  This is due to an increase in prices for bulk cargos (Turkey) and the expectation that these export prices will continue to climb.  The price equilibrium between export and domestic now favors export and will restrict scrap from moving off the coast to domestic homes.  This is already creating a perceived floor for obsolete grades as far west as Ohio…

Current prices in the Ohio Valley/ Pittsburgh region:

Shred $200-225gtd
HMS $170-180
Bush $220-230”

The subject as to whether the ferrous scrap markets are indeed near to a bottom (and perhaps steel prices to follow once scrap does bottom) was discussed between SMU and those advising us over the past few days:

From the east we heard:

“So, it seems we have found a bottom to the market for the near term based on the better export demand and some continued restocking in the energy sector for OH mills.  No one is excited that we will get a big bounce come November as we expect demand to continue to remain muted.  As long as export demand remains steady, we should bounce around these prices levels for a while until winter months make scrap supply even tighter and domestic finished steel buyers begin to return to the market.”

From the Ohio Valley we heard:

While there will be no relief for the sheet mill’s reduced demand, which with the export market are the two driving factors in scrap pricing today,  many think we are at or near the bottom of the market with the Oct drops.  At this writing there mills that have not filled their programs, and mills looking to buy additional tons over their original program buys.”

Our national scrap source perspective may be a little different but they do feel that scrap is “fairly valued” based on the following factor:

“It’s difficult to call the bottom, however domestic scrap appears to be fairly valued against ore-based substitutes at this stage.  I would keep an eye on seasonality and currency shifts as I suspect these factors will add another dimension to the domestic supply/demand picture through year end.”