Scrap Pricing Floor May Hinge on Turkish Buying

Ferrous scrap negotiations have begun between the U.S. and Canadian steel mills with most mills expecting lower prices. One way we know if the mills believe prices will fall is they will cancel any remaining orders from May that have not yet been completed from their scrap suppliers in the hopes of being able to take advantage of the weakening prices. By the end of last week most, if not all, of the domestic mills had cancelled secondary and industrial grades of scrap. Prime grades are a different story and many believe pricing on bundles and Busheling could move sideways or only slightly lower in June which would increase the spread between shred and the prime grades.

Mike Marley, scrap guru for Metal Prices (and one of our speakers at this year’s SMU Steel Summit Conference on September 3 & 4 in Atlanta) pointed out in his publication on Friday that one eastern shredder sold 45,000 tons of shred down $20 per ton. In his article he stated, “Some are worried that this first sale in a declining market could be the best deal. Prices, in other words, could be off more than $20 per ton by the end of the week.”

Mr. Marley has Chicago area brokers predicting that region of the country will be the hardest hit by price declines which could very well exceed $20 per ton on shredded scrap and could hit $350 per ton–a price level not seen since last year.

One of the key companies involved in the ferrous scrap markets provided us with their thoughts on the developing scrap markets as we enter June negotiations:

“We’ll obviously know more heading into next week, but the mills have already sent out cancellations on secondary grades and shredded scrap in anticipation of lower prices heading into June.  Flows are steady into yards on both secondary and prompt industrial grades to date.  I could certainly see a $20+/gt correction, possibly more heading into July.  A wildcard will be the export demand.  Inquiries for container loads has heightened as domestic and imports are within $10-15/gt.  We haven’t seen spreads this tight off the East coast in quite some time.  The export demand will dictate the floor for domestic scrap over the next 60-90 days in my estimation.”

Steel Market Update will watch the scrap markets closely as the week progresses as will most of the flat rolled steel buyers who will use any price reductions on ferrous scrap as a reason to lower their price offers to the domestic mills.