Steel Products

Ferrous Scrap Prices Drop Another $30 Per Ton

March 28, 2019

Ferrous scrap prices for June have settled down another $30/GT, surprising a market that was expecting little or no decline this month and adding further pressure to already weak finished steel prices. Scrap prices have been on a downward trajectory since January.

The drop in scrap prices this month was caused by low mill demand amid high inventory levels and weak order books for many finished steel products, said Ryan McKinley, CRU North America analyst. The export market, while it rose, was not enough to offset the abundance of scrap in the U.S. relative to demand. “I also do not see much of an upside for July,” McKinley added, “but the construction sector is solid, and many expect that to help demand for long products. In theory, this could help stabilize or boost obsolete prices.”

Last month ended with #1HMS at $265/GT, shred at $290/GT and bush at $325/GT, delivered. Subtract a $30/t discount for June with possibly both July and August also down, and there are no positives for steel volumes and prices going into the summer, said scrap consultant John Harris, CEO of Aaristic Services Inc. “The market excitement is down a solid $30/GT on cut grades, but not as much on busheling, if any.”

Steel price levels continue to drop as lead times are shortening. Mill operating rates are hanging by a thread at over 80 percent but can be expected to drop over next three weeks, Harris said.

Exporter scrap is not finding homes as Turkey is not selling as much offshore steel. Both EU and Far East markets are soft with lots of steel and scrap inventories overhanging the market. “You can expect more down action later in June, and possibly July and August, as all global markets are normalizing prices to lower levels,” Harris said.

Commented a dealer in the Northeast: “The domestic market just had really weak scrap demand again, and it was a struggle, especially in the Midwest, for dealers to clear all of their sales. It’s a mess, and the mills—frankly the entire manufacturing sector—need to get their bearings and right-size their inventory positions for their order books.”

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Scrap prices, which have declined dramatically since the beginning of the year, are getting closer to the bottom for shredder feed prices last seen in 2016. “We are probably $20-30 away from those levels, helped in part by considerably weaker Zorba prices today than we experienced back then,” he said.

When will the market rebound? “At this point, I don’t see a bounce into July, but it depends almost entirely on shredder feed flows and export demand,” the dealer said. “Export demand should be steady into late June and inflows will dry up at some point this summer. We will likely bounce pretty hard when they do. But we could be several months away from that happening.”

“I cannot see any turnaround in July or August, especially since there was virtually no dealer resistance to these June prices,” said another Steel Market Update source.

He estimates the June prices for scrap in Chicago at $230/GT for HMS, $262/GT for shred and $285/GT for bush. In Cleveland, the prices are a bit higher with HMS at $243, shred at $275 and bush at $310.

“On the demand side, the main cause of the decline was a continuing decrease in volume buying. Steel orders are down and the mills have bought too much scrap. On the supply side, there is too much scrap being produced and recycled. The U.S. scrap industry has become extremely efficient over the last 30 years and now it’s working against them,” he observed.

Pig iron prices are going to be forced down given the weakness in scrap, he added. “The last deals at $355-357/MT CFR are expensive now. So, despite the firmness in iron ore and reduced production in Russia and Brazil, the next sales of BPI will be down significantly.”