‘Window of Opportunity’ for Secondary Steel

Prices are high and demand is good, but secondary material is becoming harder to find. The available supply of secondary varies by product and by region, “but the general availability of sellable non-prime material suitable for multiple applications is getting thinner and thinner,” said a service center executive in the Midwest. Buyers are more willing to accept coils with imperfections because they know they will be difficult to replace. “Now, instead of rejecting it, maybe they take the coil and cut out the bad section.” Added Goldenberg, “The line between secondary and prime has definitely blurred because people really need steel. People who normally don’t even look at secondary are taking anything they can get.”

The Midwest exec describes the secondary market as “frenzied,” adding that “service centers are suddenly feeling a lot smarter” as profits rise along with the price. Secondary prices have been increasing weekly, with more jumps likely to come. Secondary is a spot market product, so competition for high-demand items bids up the price, narrowing the spread between secondary and prime. “We are in a sweet spot in secondary right now. Inventory value has grown at a high rate, and there’s good demand. There is opportunity in this window, but it will shut pretty quickly,” he predicted, as distributors will have difficulty replacing the steel they’ve sold. “Sixty days from now there could be some serious gaps in availability.”

Another small service center in the Midwest also reports tight supplies of secondary. “What secondary that does come on the market is more in slab rolling than finished product,” he said. “While it is very tight at the moment, it is still being traded.” The side-cut business has also become very tight—prime material but excess from the original order. “Pricing for excess and side-cuts are almost at prime pricing, with rare exceptions,” he said.

Some service centers are hanging on to secondary material waiting for the market to reach the price they want, which is adding to the limited supply situation, reported a source in the Northeast. Prices will peak at some point and begin a downward correction. The challenge is predicting when. “We are trying to protect ourselves. We will really watch our purchasing going forward and make sure it is tied to customer orders. We will only buy what we need, we will not take a position on anything, because it is not worth the downside,” he said.

The sky-high steel prices are adding to the credit risk for buyers and sellers. If a buyer has a $100,000 credit line and prices jump by 30 percent, he can’t buy as much material unless the supplier extends more credit. “People are running out of their bank line, they are running out of credit insurance, they are up against their limit. The market favors the larger players with deep pockets even more these days,” Goldenberg said.

The Midwestern source expects the short-supply situation to ease soon as imports begin to flow again when the winter season ends. “Open navigation is only weeks away and will settle all these supply issues at a price cheaper than domestic, even with the tariffs,” he predicted.