Scrap Prices Expected to Rise $10-$20 in January

Scrap dealers are optimistic that ferrous scrap prices have bottomed in all regions of the country and will rise as we move into negotiations for the month of January. A rising scrap market is a harbinger of good things for the steel mills as they attempt to collect the increases already announced and perhaps add more once we move into January.

As trading subsided for the month of December, prices were strongest on the east coast due to exporters having orders and at least one domestic mill needing steel. We asked for an update on the market from one of our east coast sources who told us, “December saw the east as being stronger because one mill here in particular needed scrap, and the exporters were more active trying to secure material.  So we saw prices here rise $10-$20/GT for obsolete grades.”  

Our source went on to point out, “Export has gotten a little quiet for now.  Some exporters are paying $150/GT delivered for 80/20 to remote shippers, but other local prices remain as low as $120/GT for shippers who don’t have many options except to sell to the docks.  I think the exporters themselves do not expect to sell a lot more between now and year’s end, and that the next sales will likely not be as strong as the late-November and early-December sales.  I am guessing that the next sales will likely be in the $190/MT cif Turkey range plus or minus for the 80/20 grade.”

He also told us, “Domestic December settlement numbers were all over the place for shred $180/GT in the east, a little lower to a little higher elsewhere depending on the buyer and their need for quick deliveries.  Busheling traded at a $5-$10/GT discount to shred.”

It is expected that prime grades (Busheling, bundles) will return to their premium price status as we move into the New Year and the order books improve at the flat rolled EAF sheet mills and their need for high end scrap expands.

One of the large national chain scrap companies told us, “Prompt industrial flows slowed in December for the first time in several months and is being attributed to seasonality, but may also be related to the ongoing contraction in the PMI as the manufacturing sector slows.  Interestingly, prime scrap prices only exceeded shred prices six out of twelve months in 2015, averaging only a slight margin ~$11/gt.  This was likely the result of weaker demand from the EAF flat roll producers and ample supplies of imported metallics and domestic DRI.  This excess prime scrap was consumed by long product producers, replacing dwindling supplies of HMS and shred with busheling/bundles.  However, given recent upticks in EAF flat roll order books, it would not be surprising to see the historic premium of $15-25/gt returning to prime grades in Q1.”

When looking outside of the east coast, we saw scrap prices as having bottomed in the other regions of the country. As we move into January flows are anticipated to remain tight (due to low buy prices) with prices forecast to rise by $10-$20 per gross ton (GT).

We spoke with a dealer in Houston who told us there was only a few thousand tons of scrap at the docks and that prices would rise there by $10-$20 per gross ton but, “no more than that.”

An Ohio Valley scrap company told us, “At a minimum, mills that were able to buy scrap at sideways in December will have to raise prices by $15-20gt to match those mills that did raise (SDI, Steelton, AK).  Beyond that there is potential for scrap to go up even higher for January as most mills will be buying (note buying not necessarily melting) more scrap to restock year end inventories.”

From the east we heard, “Next month, I expect the other areas of the country to catch up.  We will see prices in the OH Valley, Mid-west, and South pick up by the same amount and more in the further west you go.  I expect to see shred around the $200/GT level from OH westward.  This expectation is driven by some pickup in demand, some of which is seasonal and some of which may be related to the small uptick in finished pricing.

Looking forward over the next few months, I don’t see a whole lot of change in pricing.  We can’t go much lower – the supply just is not there, at least not until the spring.  Finished inventories are still lurking and will keep finished pricing from picking up much either.  But even come spring, if we have worked off those inventories and finished demand stays decent and we get some help from the trade cases, we could continue to see pretty stable pricing into the early spring period.”

 A rising scrap market provides a psychological floor to domestic flat rolled prices which have risen by $20 to $40 per ton (and in some cases even more) since the beginning of December (when scrap prices bottomed and began to rise).

Steel buyers are pointing to the possible increase in scrap prices in January as a reason why they anticipate another flat rolled price increase in January.

Time will tell.