Scrap Prices Expected to Go Up in January in Short-Lived Rally

Most ferrous scrap pricing deals will be negotiated between the domestic steel mills and their suppliers over the next few days. Steel Market Update sources are telling us scrap prices could move up by $10 to $30 per gross ton or more depending on product and the region of the country.

Mike Marley of MetalPrices.com reported on Friday that scrap dealers are convinced prices will go up by $30 per ton or more and have therefore resisted taking offers at the up $10 to $20 which were being discussed last week. However, he pointed out that, “…several brokers predicted that the early sales will be the best deals. Once the mills have purchased all the tonnage needed for January, they will start lowering prices until they find a new floor.”

The expectation is dealers will flood the market with up $30 or higher once January buying begins in earnest this week. Most mills will need to buy and replace depleted inventories due to reduced scrap purchases in December.

The key for the East Coast, Mid-Atlantic and Ohio Valley will be what happens to scrap that would have normally have been exported to Turkey and elsewhere. The value of the dollar continues to be quite high, making U.S. scrap more expensive than that of Europe and Russia. Mike Marley reported the last sale to Turkey was done in mid-December at $330 per metric ton for a mixed cargo of heavy melt and shredded scrap. He told his readers, “Turkey’s imported scrap prices have been inching downward since that deal and European suppliers are filling their needs. Prices are now between $315 and $320 per tonne for 80/20 heavy melt delivered to Turkish ports. An East Coast dealer said those prices probably are probably too low to attract U.S. exporters. He believes they want more than $325 per tone for 80/20 heavy melt.”

One of our East Coast scrap sources also pointed to the discrepancy in the prices available for export to Turkey versus selling shredded scrap into the Ohio Valley markets, “It is certainly beneficial for exporters now to sell more domestically with shipping point prices for domestic sales $25+ higher than export sales.  Shred cif Turkey seems to be around $330/GT, maybe a bit better (or not).  With a, say $25 freight + $7-8 loading for shred, they are looking at $295-$300/GT shipping for export shred.  Into the domestic market, if shred is $365/GT into the OH Valley, and maybe even higher down south, that’s a big spread and too big to last if we assume that the export prices will not go much higher.”

Our source went on to say, “But the logistics of getting the scrap to domestic mills can be problematic (not prohibitive however) on occasion.  More importantly, the exporters are not sitting on a lot of inventory, so they would be selling scrap they need to buy for both their export and domestic customers.  Bottom line – they will sell a good slug into the domestic market in January but it will not overwhelm.

“Many domestic mills need scrap now and some have low inventory levels.  Dealers may have held some scrap back in December but I don’t sense it’s an overwhelming amount.  And those dealers know that the scrap they sell in January will not be replaced by the same amount of cheaper scrap to sell in February.  We are still in an overall tight scrap market.  If we drive the price up in January because we have low inventories, then drive it right back down next month because we begin to see some better scrap flow, the flows will dry up again.  While some price stability would be better for buyers and sellers, that does not seem to be the nature of the market.  So I expect continued volatility this winter as we saw last year.”

Out of the Midwest we heard from one of our sources, “What I am hearing is the markets in the Ohio Valley and East could be up in the 20-30 range. The Midwest looks more like a 10-20 range. I agree with Mike [Mike Marley of MetalPrices.com} we are going to see a lot of scrap come out in January. So I see a up market in Jan. but do not see it lasting. I am seeing an iron market that will give up more on price then it gains in 2015.”

We should have a better handle on where scrap prices settle later this week.