Scrap Pricing Expected to Lead Next Price Increase on Flat Rolled

Written by John Packard

Steel buyers are beginning to brace themselves for what may well be another tumultuous month of allocations, closed order books and even higher steel prices. At this point it is a foregone conclusion with most buyers that there will be another increase. The question really is how much higher will prices go during the month of May?

One of the major inputs which is pushing mill base prices is ferrous scrap pricing. There are reports that scrap may be short in some markets. The expectation for scrap prices for May are for higher prices but exactly how much has been a moving target over the past week.

Earlier this week we heard from one of our East Coast scrap sources, “In early March sometime after the trading period ended I recall talking to someone and we were saying the next level for 80/20 was $225-30 cif and that if it got there is would be up about $50 from the bottom.  We were concerned the move up was too much too fast.  So today we are $80+ above that “overheated” level of about 5-6 weeks ago.  Of course, flat-rolled prices I think are up about the same amount, right?

Also since I emailed you this morning I am hearing of two more cargos sold at the $312.50 level.  So maybe we are closer to a stable level for now.  But who knows just how much the Turks need to buy to fully restock.”

We also heard from a pig iron supplier who reported, “Nucor bought a partial cargo ex Brazil for August shipment.  $300 MT CFR NOLA .  Market is going to $320 soon.  Big shortage.  Scrap projected up $40-50 GT [gross ton] for May.”

A large service center steel buyer laid out some of the challenges their company was facing due to the projected increases in scrap and what impact it will have on steel prices as we move into the month of May:

“[I am] Hearing that EAF producers in south expect Scrap to rise $50/ton for next week’s settlements. Other regions saying $30-40. Busheling will move back above shredded and carry a premium once again. Supply of busheling has finally been drawn down and buyers trying to get ahead of summer shutdowns.

EAF mills are running full out and have become substrate suppliers to the BOF mills who have melt idled. This has created an abnormally high demand for scrap, relative to the “normal” configuration in the US Sheet producing market. In addition, export demand is robust, putting further pressure on scrap.

Mills are going to customers now, and asking for their projected needs through the end of the year. With allocation a very real situation now, mills are attempting to be “fair” and supply customers based on history. With no signs of idled melt returning to the market, and with imports not really a factor for now, the mills are looking ahead and assuming we could see the current dynamics sustaining for some time. As a result, mills are having more difficulty responding to RFQ’s from both a lead-time and price perspective, which is frustrating customers.

It’s interesting, I’m finding that our personal relationships with our mills and how we’ve treated them in the past (fairly) is paying off in this market. It reminds me that business is still conducted between people, and there’s no substitute for well nurtured relationships.

HR quotes are in the $550/ton range CR and Galv $730. However, getting a mill to give firm lead-times and pricing is a moving target.”

Steel buyers should anticipate another round of increases once the mills have a better handle as to how much more they will be paying for scrap during the month of May. Our expectation is buyers should expect at least $30 to as much as $50 per ton in new increases in the coming days (SMU opinion). As the steel buyer noted above, now is a good time to call on those relationships with the steel mills you have been cultivating over the years (and if you haven’t, then you may be screwed…).

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