Watch Scrap Prices Lead Flat Rolled Prices Higher

As we discussed earlier this week, higher international prices for iron ore, coking coal, pig iron and steel are helping take ferrous scrap export prices higher. SMU had lunch with one of our scrap/pig iron experts who advised that 80/20 scrap export prices may have reached $280 per metric ton delivered. At the same time, pig iron prices delivered to NOLA are reported to be very close to $300 per metric ton with Russia being the main supplier as many of the Brazilian operations have closed down. The combination of higher export pricing coupled with improving order books at the U.S. steel mills is helping propel ferrous scrap prices higher.

Pete Myers, Executive Vice President, Metallico provided the following analysis of the ferrous scrap markets to SMU earlier today, “Scrap prices in the US are being driven by international markets. The well publicized increase in iron ore and coking coal prices has triggered greater demand for ferrous scrap worldwide.  This demand has translated to higher prices worldwide for ferrous scrap.  What is happening today in the US market is a good example of two paradigm shifts the scrap industry is experiencing:

“One, whereas in the past regional demand and pricing was focused on traditional markets such as Birmingham, Pittsburgh, and Chicago.  Those regions provided arbitrage and gave the market direction.  Today the regions that provide arbitrage and market direction are international and can be considered as the US, Turkey, China, Europe, and India.

“Two, the price deviations in specific scrap grades such as shred, bush, hms etc traditionally would affect the market as a whole in terms of demand, pricing, and scrap flows.  Now this affect pales in comparison to the deviations between ferrous scrap and iron based substitutes such as iron ore, pig, coking coal, and DRI in varying degrees.  These deviations have far more influence on the scrap market and I believe will continue to do so.”

Myers, who is very bullish on scrap pricing going forward told us pricing in the Ohio Valley were as follows:

Shred $240-245

Bush $245-255

HMS $210-225

Plate $245

The Ohio Valley prices represent a $30 to $45 per gross ton increase from month ago levels.

The Chicago area is seeing prices in the $205 level on #1 HMS, shred at $230-$240 and #1 busheling at $235-$250 per gross ton.

Scrap dealers are now expecting prices to continue to raise in the coming months as the factors driving prices today will continue for some time to come.

One of our sources told us, “I can see +30-60 over the next 2 months.  There’s mounting pressure on supply.  I think mills could be somewhat conservative in December, but they’ll make up for it in January.  Steel pricing is moving up.  Scrap is driving it.  For the first time in quite some while, scrap is leading the dog right now.  Steel has put pressure on scrap for the past 24 months.  We’ve switched that, and it’s now scrap and raw material costs driving the bus.” 

From the east coast we heard, “Driving forces behind the November scrap negotiations:

•    Export demand, driven by higher global integrated mill demand for scrap due to higher coal and Fe ore prices.
•    Higher pig iron prices (currently around $300 del NOLA)
•    Seasonally slower inflows
•    Better demand from OCTG mills in the OH Valley

“US dealers holding back because they expect a continued rising market and the end of the year period. Looking forward, I see the same factors driving the December negotiations.  While trading is not really happening now because dealers do not want to sell and leave money on the table, the market is clearly strengthening.  Integrated input costs have continued to rise, the Chinese are looking for scrap off the West Coast, and Turkish CIF prices have risen to $270 with the expectation they will continue to climb.  And we have not even factored better US demand into the equation yet.  Prime scrap prices trail pig iron prices by a wide margin.  They will have to catch up at some point.”