Dealers Surprised By Degree of Weakness in Scrap Prices

The one theme we are picking up from our scrap sources is the weather is secondary and is being trumped by the lack of exports off the east coast. This is pushing scrap that would have normally gone to Turkey into the east, Mid-Atlantic, Ohio Valley and other non-traditional markets. One of our sources pointed out the practice of multiple offers on the same scrap to the domestic mills leaves an impression that the market is actually weaker than it actually is.

The pressure is on shredded and prime grades of scrap but the lower shred prices push the grades below it lower.

Pig iron prices are reported to be stable at $412 per metric ton, CFR port of New Orleans. The pig iron dealers believe the market will remain unaffected by the new DRI facility in New Orleans. One pig iron dealer explained that Nucor was still buying pig iron.

Here is how one of our east coast dealers sees the current ferrous scrap market:

“We are most of the way through the February buy programs and it is still difficult to get our arms around the market.  

What is clear is that the downward pressure on scrap prices has been a lot greater than most people, including me, were anticipating.  Notwithstanding the terrible winter weather most of the northern part of the country has endured, the volume of scrap being offered this month is much greater than typical historical levels because the traditional exporters have been selling scrap to domestic consumers.  No one knows how much supply which has not stayed domestic for many years has come on line in February.  And the same tons in many cases keep getting offered over and over again thereby creating the perception there is more scrap available than there really is.  But bottom line is that it’s been a lot of export scrap sold to domestic mills, and it looks like it’s going to continue into March and at least until domestic delivered prices get closer to CIF prices to Turkey.  

There are a bunch of reasons that Turkish demand has dried up – it’s been an ongoing process for some time driven by weakening end markets and a general oversupply of steel in the world.  But the final straw seemed to be the recent 10% lira devaluation and political unknowns there.  So it could get worse before it gets better.  But it won’t continue like this forever.  

Prices seem to be off January levels anywhere from $30 – $45/GT depends on the grade and where you started.  March at this point doesn’t look better.  How much prices may drop in March will depend on weather of course and how quickly dealers, including the exporters, can replenish the scrap they sold in February at much lower buying prices.”  

We are seeing split opinions as to where the market goes from here. A number of our sources believe prices will move another notch lower – maybe $60 per gross ton lower than the January numbers – before they rebound. Other sources think there will be a rebound prior to the summer slowdown.