Ferrous market on edge: June prices poised for potential plunge

On the possible eve of the June buy, the sentiment is for weaker prices for June. The question is, how much weaker?

The mill buyers sense an opportunity due to the weaker demand and softer steel prices. There is no hurry to buy, and if they drag things out, the theory is that the trade will not resist even lower prices. Most mills have canceled undelivered orders from May, but dealers are shipping scrap now on the infamous TBD platform. So, the stage is set.

The case for going down $20/gt or more is reliant on these factors:

There is less demand due to several announced outages at mills in various regions.
There seems to be adequate scrap flows and generation this time of year.
Steel mill order books continue to soften.

The case for a less than $20/gt decline is reliant on these factors:

Ferrous scrap export prices certainly haven’t decreased by $20/gt but have held steady within a $5/gt range over the last 60 days.
These export prices should retard erosion of scrap prices for mills near exporting districts.
The price of pig iron has not dropped over the last two months. It has solidly remained at $485/mt CFR U.S. ports.
Scrap flows should start to decrease as we hit the summer months and lower prices will hasten this.

Overall demand for scrap will dictate how far the market will fall. If steel demand stabilizes and economic growth maintains, June should be just another bump in the road.