Miller on Scrap: Hope for a bottom in the U.S. market

As we enter the final week of the month, there seems to be growing hope that the U.S. scrap market has bottomed. The steep price declines in March may have resulted in ushering in a bottom as dealers are saying their stocks are a bit depleted. Their concern is the flow of obsolescent will be cut severely with any further drop in prices.

Is this wishful thinking or do the fundamentals support the prediction of a market bottom? Let’s take a look!

The flow of shredded feed has been adequate, but the price of it keeps rising from earlier in the month. Lately, the Northeast and Ohio Valley have had continuing winter conditions. This has not helped flows into shredders or other grades to scrap processors.

According to one shredder supplier in the Ohio Valley, prices for shredder feed were not drawing much, down by $50/gt, and shredders bumped up the price $20/gt to obtain material. This supports the prediction of a sideways market, at least for April.

The bulk export markets on the East and Gulf coasts have increased significantly over the last week. The lowest priced sale of HMS 80/20 occurred mid-month at $376/mt CFR Turkey. Yesterday a U.S. cargo was sold for $389/mt CFR. That is a $22/mt increase in short order. In discussing the West Coast export market with a longtime veteran, he said “we have reached a bottom.” This assessment agrees with RMU contributor, Phil Hoffman’s recent article on the Asian markets.

The pig iron markets are firming up as well. According to a U.S.-based pig iron trader, Brazilian prices have risen about $15/mt to $465/mt CFR New Orleans and are expected to rise another $10/mt on the next sales for June shipment.

What’s in question are the level of steel mill outages or cutbacks that could affect demand for scrap. In checking with scrap processors about the level of manufacturing, especially related to automotive, most think the automotive business is still strong. They further agreed their prompt scrap generation has not decreased. So, they are using steel.

Given all these mostly bullish factors, it seems the April scrap market shows little weakness. The market would be best to trade sideways and most dealers whom we contacted would support this. But any further decreases in mill pricing would be a risky bet, as scrap flows could quickly dry up.