Steel Mills Push to Get Higher Secondary Price Minimums

According to SMU sources, last week ArcelorMittal USA raised the minimum selling price on secondary grades of steel to approximately $500-$520 per ton ($25.00/cwt-$26.00/cwt). This has caused some concern within the industry with one fabricator who has been involved with secondary steel for the past 15 years reporting to Steel Market Update, “…I have been told from a supplier that minimums have been put on all secondary steel including secondary programs (pup coils, heads and tails, field claims, etc.)…the minimum is $25.00/cwt…After the scrap loss and additional processing costs on this type of material the true cost is very close to the cost of prime material.” This manufacturing executive reported that he believes secondary steel prices will at least temporarily increase.

When we discussed the issue with one of secondary service center contacts located in the Midwest we were told there were minimal amounts of secondary steel available in the marketplace. “This has kept my spot business to other distributors very brisk.”

He reported, “Mittal and Nucor are all thinking that non-prime has greater value.” He went on to say, “Realistically there is always a minimum price but it moves with the market. When the price doesn’t work they adjust it.”

This distributor told us that by going to the market and putting a so-called “minimum” price level out there, which he pegged at $520 per ton, now the price negotiations and discussions within the industry are a little “louder” than normal.

We were told the usual gap between #1 dealer bundles (prime scrap) and secondary is approximately $40 per ton. With prime scrap going for around $400 per ton that would mean, using the old formula, secondary prices should start at $440 per ton ($22.00/cwt) or $60 to $80 per ton below the $500-$520 spread mentioned at the beginning of this article.

We were told, “The only way they can keep these minimums is if the market allows it. If I need it I will pay the price and buy it. I am concerned as there is no depth to the well [very little secondary inventory being offered].”

One of the issues the secondary distributors are seeing is the prices of some of the foreign steel (and specifically the Chinese cold rolled offers at $32.50/cwt the Gulf of East Coast port) are making it difficult to compete with foreign, such as the secondary cold rolled material this distributor was attempting to sell at $35.00/cwt. “The influence of the foreign steel will grow as the summer moves forward [and more foreign steel arrives].”

Right now, we learned steel producers are trying to hold their ground. From the distributor’s viewpoint, “There is a level for secondary and I think they are over-reaching.”

Another distributor of secondary material located in the Southeast told us that the mills have been collecting higher prices and over the past few months the end users they are selling to have seen their prices increase by approximately $40 to $60 per ton.

Like the Midwest service center referenced above, inventories of secondary steels are moving quickly even though our Southeast distributor told us, “I don’t see any tightening of supply.”

“Prices can be all over the place with the floor on hot rolled ranging from $23.50/cwt to $28.50/cwt.” He went on to say many of the items they buy are coming off of bid lists and the bad items that don’t get bought tend to end up back in the mill furnaces.

“Right now,” he said, “the mills are holding prices firm. However, July is always a challenge.”

He went on to tell us, “Our market feels better and is coming up a little bit, but nothing like the home run we have seen in auto.”