Headwinds haunt ferrous scrap market

Sources have told SMU, there are several mills that are short shredded scrap. This has occurred because material is scarce due to low prices and winter weather, although there are some signs of recovery.

In addition to this, there is fierce competition for shredder feed among scrap processors and some shredders grossly overestimated the amount of supply they could obtain. This has caused several scrap suppliers to fall short of their contractual commitments to their steel mill customers and has left some mills looking for other suppliers to fill their needs.

Needless to say, the March market can’t go down in price with this situation casting its shadow on things.

Scrap survey results

After reviewing the results of SMU’s new scrap survey, there was some differences among the respondents about the February market. (Note results were received before the February market settle.) Of the respondents, 64% were dealers/brokers while 13% were steelmakers.

In the survey, 91% said overall domestic demand for ferrous scrap was stable or improving and 74% answered the February market would be up. Then 71% said #1 Busheling would sell below $440/gt. This is a pretty big miss as most major mills paid at least that price.

The responses on shredded showed all of the respondents predicted shredded at $410/gt and under. Shredded prices ended up $420 – 445/gt, with mills paying higher prices in the aftermarket.

On HMS, the predictions were more accurate as 67% had this price over $350/gt. Yet a vast majority said both industrial and obsolete scrap flows were stable. SMU’s sources have generally reported the opposite. So, with respect to the survey, we decided to check further with other sources.

Reaching out to market

A source in the Southeast with scrap facilities across the country told SMU the market in their opinion is strong sideways for March. He said some of their facilities, both in the South and in the Central districts, north of the Mason-Dixon experienced a significant increase in obsolescent flows. He attributes this to the higher prices paid. He did say, however, “It’s still a supply-driven market.”

The price elasticity of obsolete scrap should not be underestimated. This kind of shoots down the argument that paying more would not draw anymore tons of scrap. Maybe not prompt scrap but it does for secondary grades.

Continuing to look ahead to March and Q2, a mill source said domestic steel demand should increase with the tariffs on Canada, Mexico, and the rest of the world.

He added, this will put more pressure on scrap. “If flows do not improve as spring weather arrives, we (steelmakers) will likely continue to pay up money on scrap,” he said.

The month of March is historically a weakening month for scrap as winter starts to loosen its grip on collection efforts. However, with steel demand starting to improve and tariffs looming, its questionable we will see weakness this soon.