Scrap Prices Move Higher Providing Support to Domestic Mill Price Increases

Scrap prices settled higher by $20 to $30 per gross ton delivered to the domestic steel mills, according to Steel Market Update (SMU) scrap sources. The rise in ferrous scrap prices has been one of the driving factors behind the flat rolled price increases announced by the domestic steel industry over the past few months.

We asked one of our sources in the Ohio Valley to explain what happened this past week as the dealers and steel mills negotiated prices for May delivery:

Where to begin?

Export was the driving factor-the closer to the coast(s) the higher the prices.  Prices for HMS are $40-50/gt higher in New Jersey than in Ohio and points west: $240 vs. $280/gtd (gross ton delivered).  

Throughout this week sellers were scrambling to get their scrap to the exporters or mills on the east coast while buyers tried to determine the lowest price they could pay to keep material from leaving.

Scrap yards with rail or barge access to these higher markets are enjoying an advantage over facilities without.  As of this writing there is a pause in new Turkish sales and most believe this market has peaked for the time being.  However the Turks need to buy a lot of scrap and most expect current prices ($315-330) to continue through June at least.  This should create a market floor for obsolete grades in the domestic market during this time period.

Inland prices for plate & structural (p/s) and shred went up $20-30/gt @ $270-285/gtd with primes trading up $30-40/gt @ $290-300/gtd.

I see continued tightness for both obsolete and prime grades through June.  The differential between inland and coastal prices will lessen but overall I believe scrap markets will remain at current price levels over next 45-60 days.

We heard similar comments as a large Chicago area scrap source told us, “Up $20 on cuts, shred and $30 on primes” when asked what changes he saw in his orders for May.

Earlier this past week we heard from an east coast dealer who told us HMS sold for $260 per gross ton, plate and structural at $270 per gross ton and shredded scrap at $290 per gross ton. Over the weekend this same dealer told us in an email:

The May market has mostly settled.  Deals in the northeast were made early because of the pressure of rising export prices.  Those mills came in on Monday last week at up $45 on cut grades, up $40 on shred and up $50+ on prime grades.  The balance of the domestic trading took time and didn’t happen until late Wednesday and Thursday.  The large buyers took their time and resisted the upward momentum of the export market.  Chicago seemed to be the weakest region in terms of demand, though prices did rise there from April levels.    In the south prices initially rose $20/GT for obsolete and $30-$40 for prime.

There was a disconnect between what seems to be a significantly stronger domestic sheet market and the mills telling dealers they had enough scrap.  We dealers see what’s coming into our yards on a daily basis and it just doesn’t make sense against what the mills are saying.  In any event, I got some renewed interest at higher numbers (by $15 from levels earlier in the week) on Friday afternoon for scrap I had held back earlier in the week.

With the relatively muted increase in many areas of the county that we saw in May and what seems to be better and better demand from the flat rolled mills, I am expecting at least a sideways market in June and would not be surprised to see it move higher.  If export continues to tick up (cfr deals today are around $335/MT for 80/20) and some think we are not yet at the top) that stability could continue into July too.  Until the restocking for flat rolled ends we think there is not significant downside for scrap.  That’s not to say the mills won’t try to lower prices at some point in June or July but I am not sensing that we are going to give back all the gains of the last 60 days. 

Last week we saw price increase announcements out of two of the integrated mills: ArcelorMittal which put out specific base prices on hot rolled ($610 per ton), cold rolled and coated ($800 per ton) and AK Steel which announced a $60 per ton increase on their carbon sheet products.

We did not see announcements out of the electric arc furnace (EAF or “mini” mills) since scrap did not settle until late in the week. We did hear of Nucor putting $620 hot rolled and $800 cold rolled and coated offers out there to some of their customers. As of Friday, SDI still had their June order book closed.

It is our opinion (SMU) all of the mills will come out with prices similar to the AMUSA and Nucor numbers by early this week.

With some of our scrap dealers calling for continued tightness in the scrap markets but inferring that prices for June may go sideways, iron ore prices are moving lower in China and the domestic mills have already taken prices up in excess of $300 per ton (on some coated products to as much as $400 per ton) over the past few months, will the mills allow the market a moment to breathe and absorb the increases? Or, will they continue to pump prices higher feeling momentum is on their side?