Scrap Prices North America

Steel Mills Cancel September Scrap Orders in Anticipation of October Swoon

October 1, 2015

Steel Market Update (SMU) sources reported the domestic steel mills have canceled any remaining ferrous scrap tonnage that was not delivered during the month of September. This is normal when the mills believe that they will be able to negotiate lower prices for October delivery. As reported earlier this week, the expectation is for scrap prices to decline by a minimum of $20 per gross ton and, in some regions/products, the drop could be as high as $50 per gross ton.

One of our scrap sources responded to SMU questions about what is driving ferrous scrap prices as we head into October negotiations with the domestic steel mills. He said, “…we’re certainly going to see another sharp swing down for scrap prices in October. In addition to the usual suspects – currency, overcapacity, export/import dynamics – some of the conventional destocking associated with Q4 seems to be adding a new element to the weakness, pushing scrap down $30+/gt. Cancellations are systemic this afternoon and the desperate efforts to find a home for scrap in October are abundant. We’re in for another bumpy ride as we go ‘Back to the Future’ of Q4 2008, just wish I could ride it out in a DeLorean, no scratch that, its stainless…”

We then asked him to provide SMU his insights into what is driving scrap prices at this time. He told us, “Excess mill inventories, softening steel prices, sidelined steel buyers are imparting a fear we haven’t seen in the ferrous markets since the GFC as concern rises over having a market for scrap, let alone a price.”

When asked if the weakness at the steel mill level was associated with long or flat product mills he told us, “Weakness prevailing on both fronts.”

When asked how far he expected to see scrap prices fall as October negotiations begin in earnest he said, “We’ll see in excess of $30/gt across the board as supply will once again overhang the market. However, as these prices push below $200/gt obsolete inbound scrap will slow considerably and likely bring some speculation as retail scrap prices fall below $100/gt. However, industrial flows should remain steady, countering some of the shortfall.”

He went on to comment on what point we could see a bottom to the drop in scrap prices, “I would suggest that October/November pricing will represent a floor on obsolete scrap. We’re nearing a point where the costs of collection, processing, and transporting of ferrous scrap at any margin is economically prohibitive. I believe scrap will likely remain range bound at these lower levels through year end as overall metallics demand continues to contract. Despite the prospects for better steel prices heading into 2016, scrap prices will remain lackluster in light of dismal scrap exports, the stronger dollar, weak ore prices, and continuing imports of scrap, ore-based metallics, and semi-finished steel.”

Other sources told SMU that we should expect to see HMS around $150 per gross ton and shredded scrap below $200 per gross ton.

We will have more details next week once the markets begin to settle.