Scrap Pricing Moving Higher than Expected

Written by John Packard

There has been a flurry of activity over the past 24 hours with our sources suggesting that the very early trades on ferrous scrap were done up $30 to $45 per gross ton. As we slide into late Tuesday our sources were advising that the numbers could be up as much as $50 per gross ton.

Earlier today we received a note from one of the larger scrap recycling companies. We were told, “While the market is in the early stages of negotiations, some business has been transacted in the +$30-50/gtd range.  The broad spectrum of prices reflect some “catch-up” trades as some dealers sold early in November, failing to achieve the full price appreciation.  Generally speaking, demand is firm and pricing pressure will likely stretch into January as mill order books continue to strengthen.”

As the day moved on we heard from one of our main sources advising the market was being slow to develop and providing some insights into what has been going on with negotiations. We also learned that pricing momentum appears to be on the side of the scrap dealers and that the mills can expect to pay even higher prices come January. Here is what we learned:

The market has been really slow to develop.  I am sure I will have more analysis for your Thursday evening edition, but for now here is what I have.

Deals for shred in the Ohio Valley are being done at $290 now and I think the market will go higher than that in the next day or so.  Whether it hits $300 this month I am not sure, but I suspect it will and more will come January if not.  While that number is up $50 from last month, the market has room to run.  From what I am hearing, Chicago district shred is also around this level.  East Coast shred is up but is a smaller market and it is closer to $265.  All of these levels are higher than where the mills wanted to buy last week and even on Monday this week.  Their problem is that while they are layering in a little more at every incrementally higher price level, they are still not getting covered for all they need.  Mills know they will have to pay more next month but that will be then and this is now.  Prime scrap we are seeing trade at $290-$300.  That probably goes higher too in the next day or so.

The bigger picture factor here is that we are still working the raw material input cost playbook, and by all calculations even after a $50 increase this month scrap is still a value.  By some accounts, scrap could still be at a $50-$60 discount to blast furnace iron even after the December increase.  That’s even more true because the alternatives are not even available let alone considerably more expensive.  Accordingly, I am a little surprised that we are not seeing the market move higher than it has already.  But as I said, things have been slow to develop and we are not finished yet for December.

Export has also been very slow as well.  Generally the US exporters are not eager to take sales that are not at their preferred price levels (which are higher than $285 cfr for 80/20) because they don’t have much inventory to sell, and Turkish mills have not been eager to pay these levels because of their poor market for finished goods and a weak lira.  So there is a bit of a standoff happening there, and fundamentally the Turks don’t have any viable alternatives.

Steel Market Update will continue to follow the markets and report further on the trades in Thursday and/or Sunday evening issues.

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