Will Ferrous Scrap Prices Continue to Decline?

Ferrous scrap prices declined by $30-40 per ton in January—a month that typically sees prices rebound. Some scrap experts predict the downtrend may continue. How low prices could go is a source of some disagreement.

January scrap settled at the following numbers in various regions, report SMU sources:

• Midwest/Ohio Valley: Shred – $330-335/GT; HMS – $310/GT; Prime – $380-390/GT; P&S – $335/GT.
• Detroit: Shred – $315/GT; HMS – $295/GT; Prime – $370/GT; P&S – $325/GT.
• Pittsburgh: Shred – $335/GT; HMS – $310/GT; Prime – $380/GT; P&S – $338/GT

Scrap consultant John Harris of Aaristic Services, Inc., reports that scrap prices are dropping in all the global markets, not just the United States. Exports of DRI/HBI, billets, blooms and slabs from Iran are up significantly, “knocking the legs out from under” exports from Turkey, Vietnam and Taiwan. In addition, steel production in Russia and the EU is down, creating large surpluses of scrap. Export scrap from the U.S. has no home, and therefore suppliers are selling it back into the local markets at a discount to maintain cash flow. “You can expect scrap prices in low $200s in the next few months. Considering the global influences, it’s not hard to predict down markets for both raw materials and steel, even with 80 percent utilization rates,” Harris said.  

How low prices ultimately go, assuming demand in the U.S. stays strong, depends on the strength of the overseas markets, other sources agree. “And the strength of overseas markets depends on Chinese prices. If stimulus in China creates more demand, as some anticipate, then I don’t see prices falling much further,” said one scrap executive.  

Various factors are working against another dramatic drop in scrap prices in February, said another dealer in the Northeast. For one, the export market is bottoming and demand for scrap overseas could improve. Harsh winter weather in January and February typically slows scrap collection and reduces supplies. Declining scrap prices, such as those that have occurred recently, act as a disincentive to inbound scrap flows. Logistical issues, such as the lack of railcars and extended turnaround times, will make it difficult to sustain the movement of large East Coast tonnages into the domestic markets. And the high mill operating rates in the U.S. will sustain a certain level of demand for scrap, even without a strong export market.

SMU also heard from a scrap dealer in Florida that his business had been mostly exports to China. China is blocking future scrap exports, wanting their steel companies to use home scrap rather than imports. This could pressure prices for those dealers who had been depending on the Chinese market as their customer.

Absent a big weather event, another at least modest decline in ferrous scrap prices is not unlikely in February, dealers say, adding to the pressure on finished steel prices.