‘Sloppy Sideways’ Expected for February Scrap Pricing

Three weeks ago, the expectation for February ferrous scrap was for prices to be firm to slightly higher than January. This was due to rising prices on exports of ferrous scrap to Turkey, as well as cold weather in the north and large buys by the domestic steel mills as they restock after running inventories lower at the end of the year.

Over the past week, we have seen a weakening in export prices and a bit of a reprieve from the cold and snow, causing the market to rethink February’s price direction. Scrap guru Mike Marley of World Steel Dynamics reported to his clients late last week: “Now, instead of talking about another up $20 to $30 per gross ton, many are anticipating a ‘sloppy sideways’ market.”

A scrap dealer in the East agreed with Marley’s assessment when he told SMU: “Not sure where anyone got up $20-30, but that’s not where the February market will be. February is typically a down month. The shorter receiving month after a strong January buy and usually higher prices from December makes a situation where mills can lower prices. This year will not be much different, except I think the downside is limited. If the market is down, and that’s still an ‘if,’ it won’t be down much. Export pricing is lower than it had been, but demand for scrap from overseas is still good as is U.S. demand. Prime scrap seems slightly in better supply than obsoletes. Shipments to U.S. mills, especially the further west you go, have been behind schedule. So, I think Mike’s ‘sloppy sideways’ description for the February market may be correct.”  

Marley also pointed out that many scrap dealers are behind schedule in shipping orders to their steel mill customers. The railroads have not been providing the number of railcars needed to move the scrap sold. “Scrap yards and steel mill transport managers may feel their companies are at the bottom of the railroads’ lists, not only for the numbers of cars they can get, but also in how quickly the railroads’ switching crews drop off those empty cars and collect the loaded gons….”

Railcars are not the only transportation-related problem. Finding truck drivers with commercial licenses is a chronic problem. Plus, independent drivers with their own trucks don’t like to drive on ice and snow. Marley pointed out Detroit is feeling the squeeze because much of their scrap is shipped by truck, and those shipments were delayed due to ice and snow from earlier this month.

Another source told SMU: “Although scrap flows and deliveries have slowed, the mills will not raise prices in February, barring some unusual event. Export prices have dropped $10-12 per metric ton from their peak in early January. The mill buyers will use this to justify buying cheaper. However, foreign demand is still brisk, and the USA mills never went up far enough to match export markets. So, it should be interesting to see dealers’ collective attitude when some mills try to drop prices. My feeling is dealers will sell less since they still owe on January orders. Pig iron prices have not changed much. Offers are around $385-390/MT CFR.”