SMU Sources: Ferrous Scrap Prices Softening

Contributing to the softening is lower demand for exports, notably from Turkey. Automotive production is slowing due to summer breaks and shutdowns by some automakers as they try to reduce excess vehicle inventories. Steel mills also have planned outages in the coming months that will reduce demand for scrap in the fourth quarter.

“Domestic and global markets are softening as we approach the October buy period,” one source told SMU. “This downward move is driven mainly by excess supply in the U.S. market, which muted the expected September increase, which in turn capped global prices. Since early September, obsolete prices in Turkey have fallen $40/GT. Some upcoming mill outages, good scrap supplies and lower export prices will drive the October U.S. market lower by $20-$30/GT. Some of this move is also seasonal and not uncommon this time of year.”   

“We will see a drop in domestic prices, probably a significant drop, which will curtail scrap flows and lead us into the traditional seasonality plays of the final months of the year,” said another source. “October should bring the bottom price level we see in 2017, and it remains to be seen how long those prices will last before moving up.” 

“We don’t foresee a big drop in the October market—$10 to $20 at the most—especially with the holiday/winter months right around the corner and reduced inventories in the yard going into next month,” said another scrap source.

Commenting on the softening of Turkish demand for U.S. scrap, one executive said: “We are seeing export sales down $30 to $40 per ton. We’re hearing Turkey still has the rebar orders, but is now purchasing billets from China as there is a shortage of electrodes in Turkey and they are doing rolling black outs at the Turkish mills.”

John Harris of Aaristic Services, Inc., is among those who expect the scrap price to drop by $20 or more this month on lower demand from steelmakers in Turkey. “Turkey was at $370, now it’s down to about $350. Going forward, if there’s no pressure, we could see it down to $310 or $320. Anytime it softens like that in the Turkish and Far East markets, that means we do not get exports off the east and west coasts. Therefore, there is excess scrap in our marketplace, and we are not seeing our utilization rates increasing enough to absorb it at this point.”

Added another scrap expert: “The main mover of the October market is the sharp decline in export prices to Turkey. The export yard price drops will help mills in the Northeast and Ohio Valley buy cheaper. But Turkey still needs to buy about 8-10 cargoes, so I don’t believe USEC exporters will sell a significant amount inland. But people are saying there is enough scrap being generated.” The export markets are all obsolescent scrap. Demand for busheling/bundles from the flat roll minimills in the South should remain strong, so the price of the higher quality grades should not drop as much, he noted. Nucor is starting up its DRI plant, which will relieve some of the demand, but barge traffic has been slow, and the material can’t arrive at those mills until the second or third week of October.

Pointing to the slowdown in automotive, another source said: “Any slowdown on automotive definitely impacts the flow of busheling. We have seen a reduction of prime grade flow in September and expect to see the flows reduced more in October.”  

Mike Marley, scrap guru for World Steel Dynamics, agrees with the consensus forecast for a $20 per gross ton drop in obsolete scrap prices, but he doesn’t expect much more than a $10 decline in busheling and bundles. 

He believes the slowdown in auto production will be significant. Several Ford assembly plants in the U.S. and Mexico have announced outages of one to three weeks and an overall reduction of 10 weeks output at these plants in the fourth quarter. GM has announced the indefinite shutdown of the third shifts at its Lansing, Mich., and Lordstown, Ohio, assembly plants, citing the excess inventories of unsold cars as the reason. In addition to the announced reductions, several dealers who handle production scrap from auto plants say the cutbacks are even more far reaching, Marley said. The consequence is less auto production scrap available to the market. 

“Integrated steelmakers may feel the reduced demand for steel sheet more than the EAF mills, but the EAF mills, particularly the EAF sheet makers, will feel the reduced supply of auto scrap more,” Marley said. “Busheling and bundles from the automaker stamping plants and their component makers account for as much as 40 percent of their raw materials supply. Thus, we could see some of the EAF sheet mills stealing scrap from each other’s suppliers next month,” he added.

Negotiations begin next week, and Steel Market Update will report on where scrap prices will be for October delivery as soon as the negotiations are complete.