Shredded Scrap Was Weakest Grade in June Trading

We have been working on trying to get a handle on scrap prices and adjustments in the costs the domestic steel mills will have for scrap during the month of June. SMU sources advised us that with the exception of prime grades of scrap most mills cancelled their remaining orders at the end of the month. The mill expectation has been that ferrous scrap prices on cut grades and shred would be lower in June than what was negotiated for the month of May.

So far, we have seen scrap prices in Detroit move lower on shredded scrap by $20 per gross ton and on cut grades by $10 per gross ton. Prime grades such as #1 busheling did not drop and instead moved sideways (remained the same).

Our sources in Chicago are telling us that the Chicago negotiations are not done–only settlements having been reached on prime grades (Busheling and bundles). Like Detroit, the Chicago market is seeing prime grades moving sideways and remaining as they were last month.

From one of our sources on the east coast we learned that the market was ending up being not as bad as originally forecast:

“Shred was the definitely the weakest grade trading in June, but by the end of the day Thursday it was not as bad as some had anticipated.  The east and OH Valley were down $20 on shred.  The south was not that weak and mills, including DJJ, were still looking for scrap as the week wore on.  Shred in the south may have started down $15 but may end up down only $5-$10.  Cuts varied from region to region – sideways to off $5 in the east, down maybe $10 in other regions.  Exporters have talked about lowering their buy prices but have not been able to take them down by more than $5/GT, and their sale prices have remained in the $375/MT cif range even with lackluster volume going overseas.  There are not a lot of cut grades out there.  And despite the shellacking that iron ore has taken over the last several weeks, primes have all basically traded sideways.

“So, where do we go from here?  The market has clearly firmed off its anticipated lows as the week is coming to an end.  I don’t necessarily think that means we pop higher in July, but the heavier “spring flows” so to speak appear to be ending and flows are returning to more normal levels.  Unless we see markedly lower export numbers or domestic demand sharply reverses course, we may be a little higher or lower over the next 30-60 days (i.e., $10/GT either way).”

Mike Marley, scrap guru for Metal Prices and one of our speakers at this year’s SMU Steel Summit Conference in Atlanta (September 3 & 4) reported that the spread between shred and heavy melt was narrowed and in some regions no longer existed. “One mill was paying $370 per ton for shred, but $375 for its heavy melt. That is unusual since shredded is normally regarded as better quality than heavy melt. Heavy Melt can be a bit like Forrest Gump’s box of chocolates. You are never sure what you might get…”

Mr. Marley went on to tell us,”The week started with prices as weak as some expected, but the tone changed as days passed for several reasons.   First, one major broker whose name we don’t need to mention was out early and buying all the shredded it could get at down $20 per ton.  That was unusual since that broker normally isn’t the first to buy each month.  That early action also sent a message to some dealers that the market and scrap demand was not as weak as they anticipated.  

“Second, the winter-delayed scrap flows into many dealers yards have peaked, either because much of the pent-up supply has come to market or dealers, particularly  the shredders, have cut their feedstock buying prices deeply enough to reduce the flows.   

“Third, no offers from the exporters.  Bill Schmiedel, Sims-Metal Management’s top trader, spoke in Miami earlier this week at the BIR spring conference and said even if the domestic market prices drop by as much as $15 per ton as he expects, he still can’t get enough scrap.   In other words,  domestic prices are still too high versus what he can get offshore ($370-375 per tonne for 80/20 heavy melt going to Turkey).  After you factor out ocean freight costs, stevedoring and other expenses, that may not leave much to share with the company’s shareholders.  So, the docks’ offers of $310 per ton for heavy melt are still too low to match what dealers are able to get from the domestic mills — $325-330 per ton along the coast and $370 further inland (i.e., western Pennsylvania and Ohio).  And if he can’t buy enough for export, what is he going to offer the U.S. mills?  

“Fourth, mills are buying more tons than normal this month because they are buying not just for June but also for the first week of July. July 4th is on a Friday.   That’s means the mills and dealers probably won’t start their monthly price dance until July 7 (Monday).  That mans published prices and the prices in those TBD purchase orders may not be resolved until the Friday, July 11.  That’s pretty close to mid-month.”