SMU Expectations for Ferrous Scrap Pricing for July

We purposely did not begin this article on where our sources are seeing ferrous scrap prices with an attention grabbing headline as we think readers would be confused. The confusion comes from the pressure the domestic steel mills are expected to put on obsolete grades, like shredded scrap and HMS (heavy melt scrap). Those of you associated with the long products industry are impacted by lower obsolete grade pricing.

For those of you associated with the flat rolled or sheet industry, the key product there is prime or prompt scrap (bundles and busheling) which are used by mills like Nucor and SDI in their sheet mills. Prices on prime grades are expected to continue to move sideways as demand is strong and supply is expected to weaken as the automotive companies take downtime for summer vacations and retooling.

One large national scrap chain executive told SMU earlier today, “Generally speaking, a flat to weaker tone on the scrap market has persisted in recent weeks, particularly on obsolete grades. Central drivers are weakness in global steel, semis [billet], and scrap markets precipitated by an overall softening in international steel demand.  Another dip in domestic obsolete scrap prices seems even more likely at this point given recent price declines on finished steel long products in the U.S.  Consumers will however, be sensitive to “turning off the scrap spigot” as we experienced late last year so I’m expecting a moderate, $10-20/gross ton decline in cuts and shred.  Prompt industrial scrap [prime grades like Busheling] on the other hand, seems to be holding firm on steady demand while flows have slowed on these grades as industrial generators take changeover and/or maintenance outages, tightening supply.  At present, these grades are poised to be sideways in July in my estimation.”

Not all scrap dealers are anxious to sell July tons right away. One of the dealers told us, “There seems to be consensus that obsolete grades will trade down- especially shred but I think this will be tempered by the following; the continued tightness and strong demand for primes.  Flat rolled mills will need to keep prices for these grades stable. [There are also] rumors that Chinese billets will be in short supply in coming months.  Exporters believe prices to Turkey have bottomed and larger suppliers are holding scrap at prevailing price levels up and down food chain. That being said I think mills will test the waters at down money for obsoletes and the question will be – do dealers hold for higher or sell in coming weeks?”

A scrap yard off the east coast provided their perspective on the upcoming July negotiations, “My expectation is no movement on prime grades.  That scrap just isn’t out there.  There seems to be a descent amount of shredded available but I would not rush to sell.  I think mills will try to take shred and cuts down $10-20/GT to test if they can buy at those levels but you might see that number come back up a bit when they can’t buy enough prime and/or cut grades.  And with the multiple price dropped for shredder feed flows are slowing substantially.  So ultimately I would say in the domestic market primes are sideways and obsolete maybe down $10.” 

When asked about the prospects for new ferrous scrap export orders off the east coast we were told, “The one other weak spot seems to be that export pricing is lower than it was last week. New cargo sales out of the Baltic look to be around $220/MT cfr but the US exporters have been having a tough time buying at the $170-$185 levels they have been bidding for 80/20 delivered to the piers.  So I think we are close to a bottom there in any event.”

We learned from one of our pig iron sources that the latest offers are around $300/MT without any takers at that price level. Supply is reported to be in decline in both Brazil and the Ukraine.

Looking out over the next few months scrap dealers are of the opinion that scrap prices will follow steel prices (instead of vice versa). One national scrap company told us, “If domestic steel prices slip, you’ll see scrap prices follow. However, global ore pricing, currency shifts and 2H ’16 U.S. steel demand will continue to play a key role in both scrap and steel prices. “