Scrap Prices Weaken Much More than Market Expected

Written by John Packard

A month ago one of our dealer sources echoed the views of many in the ferrous scrap business, he expected nothing worse than a sideways (no change) market for July scrap prices. He pointed to stronger demand at the steel mills and continued weak collection of obsolete scrap grades. We will hear more from him later in this article.

Since then the market has changed. Two of the domestic mills brought in multiple vessels of scrap from Europe.

At the same time the Chinese dropped billet prices into Turkey. Turkey, which is traditionally the largest scrap trading partner with the United States, has had to adjust their scrap buy prices even lower.

One Ohio Valley scrap dealer told shared with SMU the following, “The export market (Turkey) is far worse than most everyone expected with actual sales from the US down $30 and offers at down $50 tonne [metric ton].  At this writing offers into Turkey from the Baltic are in the $210 tonne CFR range, which if bought, would represent down approximately $70 from US sales a month ago.

The tipping point in the US domestic market came when the exporters (all of them) began offering to domestic mills large tonnages of shred which normally would have been exported.  Reportedly, one large exporter last week sold a large slug of shred to a US domestic mill at down $45gt from June.  Mills then used the possibility of buying the overhanging export tons to leverage down the domestic supplier prices.  This, in addition to the arrival of multiple vessels of imported scrap, turned what was a balanced market of tight supply and weak demand into a rout.

Early sales of Sideways to down $10 have turned to down $20-$35gts in some regions.”

Our scrap source mentioned in our opening paragraph echoed the sentiment of our Ohio Valley source:

“What a mess this market has turned out to be.  I imagine everyone had some regrets at some point during the trading process depending on whether you were a buyer or seller, and when you bought or sold.  I don’t think anyone was anticipating the downward momentum that there turned out to be, including the mills and large brokers.  

The main proximate cause of the deterioration was the exporters offering a lot of shred into the domestic market, which was spurred by their lack of ability to sell overseas due to reports of lower and lower offers of Chinese billet into Turkey.  Billet prices seemed to drift lower every day over the last week or so.  Many of us here have only the trade publications as a source of information and without disparaging those publications I don’t necessarily know how accurate or complete those reports are.  But the reports certainly set the tone for the market.  

In any event, the export market does not appear yet to have found a bottom.  We knew global scrap probably needed to come back in line with Chinese billet offers, which a few weeks ago were around $350/MT cif Black Sea ports.  So we thought maybe scrap would drop $15-$20 in Turkey over July and August from the $285/MT+ prices that prevailed in late-May and early-June. But billet prices fell further, and by this week were rumored to be around $330 or less.  Sims took a sale last week of 80/20 at $252/MT cif Turkey but only for 2 cargoes.  Their view of the global market, especially with what was happening over the last month in the Chinese stock market and with falling billet prices, was that scrap could and will continue to fall further.  Add in there slightly better flows into dealer yards, and Sims had good reason to offer large slugs of scrap at almost any reasonable number into the domestic market for July delivery, which they did.

So shred prices in the south have come off $30-40/GT ultimately, though early sales could possibly have been had at down $15-$20/GT.  Prevailing shred prices in that region were around $275-$280 by the end of the trade period, down from $315/GT+ last month.  The prime market in the south came off as well, but by less (worst I heard was down $25/GT, though some material traded at down $10-$15/GT).  In the OH Valley and Mid-west, which were regions that had not experienced large upswings in May and June like the South did, prices started sideways for some grades and then deteriorated to down $10-$15 depending on how far west you went.  And the East, which didn’t have many mills buying, traded last week at sideways to down $5 or so for shred.  But those Eastern prices are irrelevant now. The docks are paying $190/GT for 80/20 HMS currently.

Where do we go from here?  A month ago, I told you July would be sideways at worst.  So my credibility is a little wounded.  The sentiment today is definitely negative.  If the global markets and China continue to deteriorate, the dollar gets stronger, oil and iron ore continue to fall or even do not rebound, I would say there is good potential for August to be weaker than July but I will not harbor a guess as to how much.  There is no doubt that once shredders begin to lower their prices $30-40/GT the shredder flows should slow significantly.  That will tighten supply.  Another wild card is AD/CVC suits and the impact they may have on the US steel market, demand and pricing.  So it’s not such a simple analysis going forward, but the sentiment today is definitely considerably more negative than it was a few weeks ago.

Chicago area prices reportedly settled at the following levels:

#1 Heavy Melt (HMS) $240 per gross ton.
Shredded Scrap $260-$270 per gross ton.
#1 Busheling $270 per gross ton.

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