Scrap Prices North America

Scrap Dealers Holding Back as Market May be Stronger than +$50

April 3, 2016

Supply of ferrous scrap continues to be an issue for the domestic steel mills. On Friday of this past week scrap prices settled in the Detroit market up $50 per gross ton. However, many of our scrap sources are advising that the rest of the country is in limbo as many dealers think the market is stronger than up $50.

Earlier today (Sunday) we heard from one of the key scrap companies out of the Chicago area who told us, “In most parts of the country dealers are afraid to price in fear that market is stronger than 50. Mills are waiting for offers but getting nothing as of today.” When asked if they would hold-back scrap in April assuming May prices would be higher we were told, “I would not hold anything in an up 50 market. I think there is not a lot of stock in dealer yards. A lot of TBD [to be determined] happening but not enough for mill comfort. Even with higher pricing I think we are still in a fragile market that could turn the other way in a second but many think we have a 60 day window.”

According to Nick Tolomeo, scrap guru for Platts, buying prices got so low that the flows of obsolete scrap into the dealers’ yards essentially stopped. The cost to collect and deliver small amounts of scrap did not justify the return. At the same time the larger demolition jobs were halted for the same reason, the buying prices at the scrap yards did not justify the costs to demolish the buildings and then sort out the ferrous scrap.

The recent increase in steel prices in China (especially billet) has propelled buying prices for scrap into Turkey and has brought them back into the U.S. markets. This means coastal scrap has a home outside of the United States at reasonable prices which takes pressure off of the dealers servicing the mills in the U.S. The higher export prices resulted in 10 cargoes going off the East Coast bound for Turkey, according to one of our sources.

Another one of our scrap sources told us this evening (Sunday), “Detroit was really the only region to start trading last week and the two mills there I heard about were in at up $50 from March levels. Trading should start in full on Monday in the rest of the country. My sense is that $50 will be the minimum amount prices rise across the country and depending on how much the mills get (they will tell you they are getting enough but of course they have been saying that since the beginning of the year) they may have to add another $10 to that.

“Export is now $239 cif and will likely add another $10 soon. So already export is up about $65 off the bottom in mid-February.

“I think it will take a few weeks for flows to improve but they will do so due to this price increase and the season. I would guess at this point we will not be at much different price levels heading into May and that a good bit of the increase we are getting now is sustainable beyond that provided demand does not collapse (which it should not). But the up $50-$60 should materials help flows into yards for the next several months.”

We spoke with an EAF mill over the weekend who told us that they could not open up their order books not knowing what their costs are going to be until the market settled.

SMU believes there will be another round of flat rolled price increases out of the domestic mills if scrap prices end up as high as what we are seeing out of Detroit (+$50). The mills knew they had to pay higher prices by the middle of February but, the expectation at that time was up $20 to $30 per gross ton. Over the past week the market has tightened even further, driving expectations along with it.

If ferrous scrap prices end up at plus $50 per gross ton or higher it will be the largest upside jump in prices since July 2013.