Midwest steelmakers couldn’t find enough dealers willing to meet their shredded scrap needs at down $30 per gross ton. When the dust settled Wednesday morning, dealers in the Detroit area booked new orders for the fragmented scrap at $300 per ton, down $20 per ton from last month. Initially, mills that are often pricing pacesetters talked about taking shredded down $30 and sought a "sympathetic" $10 per ton cut in bundles and busheling prices.
Deals for plate and structural scrap were off by $30, but little of that scrap is being traded there compared to the volumes of shredded, busheling and bundles. Prices for the industrial grades are off by the expected $10 per ton to an average of $350 per ton delivered to mills in the Detroit region. Similar declines were being posted in the Pittsburgh and New England area, sources said, and probably will be repeated elsewhere later this week.
Those minus $30-per-ton expectations are pinned to weaker U.S. East Coast export activity. But offshore prices have risen by about $10 per tonne in the past two weeks. One U.S. exporter sold scrap to Turkish steelmakers this week with the 80/20 heavy melt price rising to about $275 per tonne delivered to a Turkish port and the shredded scrap price up to $280 per tonne. That is an increase from the lower water mark of $261 per tonne for an 80/20 heavy melt sold a week earlier by another U.S. scrap shipper.
Another factor was word that some exporters won’t offer much shredded scrap into the domestic market this month because they expect offshore prices and demand to improve. Two of the largest East Coast export yards have been open on Saturdays recently for deliveries from local dealers, an indication that they are looking to build inventory at the docks.
Another segment of the ferrous scrap export market is showing more life as well. A U.S. Gulf Coast exporter said the foreign buyers of shredded scrap in containers have become more active. Some are paying as much as $280 per tonne for containers loaded with shredded and dropped off at the U.S. Gulf Coast docks and $275 per tonne in the New York area, he said.
But U.S. West Coast sales to the Far East have weakened. Offers for containerized shipments of 80/20 heavy melt to Taiwan have slumped by about $10, down to $255 per tonne delivered to a Taiwanese port, said one West Coast trader.
Prices drop more in some early deals, but they weren’t repeated.
There were early buys by a few U.S. mills last week that matched the steel industry’s lower expectations. Two Ohio mills have made smaller shredded requirements this month, and each is buying only about 30,000 tons. That’s about half their usual monthly shredded buys. Both bought about 10,000 tons, reportedly from East Coast suppliers at $295 per ton. That was off by $35 from what they paid in March. Both expect to get the rest of their shredded needs from local suppliers at those levels or lower, but are still in negotiations, sources said. Another notable transaction was a small busheling buy by a Pennsylvania EAF-based mill at sideways prices --$340 per ton for painted and galvanized busheling, $370 per ton for higher quality busheling.
A northern Ohio trader said most of the mills aren’t disputing the steady demand for busheling and bundles and the likelihood that those prices won’t drop as much. But they were talking shredded scrap down by a minimum of $30 per ton. Several mills were offered more obsolete scrap than they needed last month, said another Midwest trader, and saw that as a sign that some yards are overstocked. “They see the $30 reduction as a price correction,” he added.
But dealers and traders in the Midwest and South say there isn't as much shredded available as the mills assume. They point to two reasons for this. First, auto wreckers and smaller scrap dealers have been selling steadily over the winter because of warmer weather and no snowstorms. Second, shredders are cutting their feedstock prices in anticipation of lower offers from the mills which will reduce the flows into their yards this month. An Eastern trader said shredders in that region have trimmed their buying prices to as low as $150 per gross ton.
Others argue that mill-owned shredders likewise have little inventory in their yards now. Mill-owned shredders normally pay higher feedstock prices than dealers, a Midwest trader said, but are having a tough time finding enough material. Some are shredding what they get from suppliers each day and have not cut their buying prices, he said. There are no excess piles of shredded scrap or feedstock in their yards, he said. But some brokers and mill buyers said dealers are floating that idea of lower inventories in an effort to bolster prices.
Industrial scrap is still tight and imported pig iron is scarce and expensive.
The more interesting battle going forward could involve the industrial grades. The supply is still tight and alternative materials like imported pig iron are also in short supply. The pig iron price delivered to U.S. Gulf Coast ports is now more than $400 per tonne, but some traders figure the delivered price to the mills in the upper Midwest is closer to $450 per tonne when including barge costs, trans loading and truck or rail freight costs from the river to the mills.
Pig iron is unavailable from the Ukraine because of the on-going conflict with Russian separatists, and now the only pit iron available from Brazil is the material produced in the southern region. Brazil’s northern ironmakers are sold out through June, said one U.S. trader. Most U.S. mills that use imported pig iron dislike the Southern Brazilian iron because, they say, it has too much phosphorous which can lower the ductility of sheet steel. Russian pig iron is available, but the price is said to be high, as much as $400 per tonne F.O.B. Black Sea ports.
A Chicago area broker said that while many of the mills cancelled most of thei unshipped orders at the end of last week, a few were selective. He said most of the axed deals involved those from remote suppliers – i.e. those with higher rail freight costs – but some have kept orders with their largest and/or nearby shippers.
Dealers argue that the supply of prime scrap will tighten up even more in May and June if the mills try to push through steeper price cuts. Industrial scrap supply shrinks in June and July because of vacation outages at the auto plants. Consequently, dealers are apt to hold some prime scrap off the market if the mills cut those prices. So, said a Detroit area dealer, if the mills cut the busheling price by $20 per ton or more this month and another $10 in May, they may have to pay up $40 per ton in June to steal the diminishing supplies of busheling from each other.
That could change if Nucor Corp., Steel Dynamics Industries and Big River Steel are sideways on these prices this month. First, dealers believe it will be difficult to keep sheet prices as high as they are now if the mills are cutting prime scrap prices. Steel users will expect them to pass along those savings. Second, they won't be able to get much prime scrap out of Canada this month. Dofasco and the other Canadian mills supposedly have bigger production programs this month and plan to buy more scrap to fill those.
But some Midwest scrap traders said they expect Nucor to be very aggressive in seeking lower prices. The steelmaker is said to have 12 cargoes of imported bundles and shredded coming in from western Europe this month , said a Midwest trader. That and the resumption of production at its direct-reduced iron plant in Convent, LA, could minimize the company’s need to purchase much industrial scrap.
Even if scrap supplies are lower, some mills will buy less in April.
And a few more mills may not have as large an appetite for scrap this month. Buyers at two flat-rolled mills–one in the South, the other in the Chicago area–have told suppliers that they will have a smaller scrap buying program this month. Another long products mill in the Midwest has excess inventory and a maintenance outage scheduled this month, said another trader.
That mill is a key buyer of machine shop turnings and probably won’t take any this month, he said. That could spawn a few panic sales by some dealers. Turnings, though they don’t command the same high prices as busheling and bundles, nevertheless are industrial scrap. The volume of turnings generated each month by machine shops and other manufacturers are not influenced by prices. The same volume will be produced and shipped to scrap yards whether the price is $200 or $2 per ton.
Lastly, domestic steel output sagged for the third consecutive week. According to the American Iron and Steel Institute, raw steel output slipped to 1,692,000 net tons while the capability utilization rate was 71.4%. That is down 1.9 percent from the previous week when production was 1,725,000 net tons and the operating rate was 72.8%.
Shredded Scrap Thermometer: Shredded faces a chilly spring.
Prices paid for shredded scrap and other obsolete scrap grades were rising by $40 per ton a month ago and dealers were worried about adequate supplies. This month, mills are talking about excesses and pushing for price cuts of more than $30 per ton. A spring price correction? Possibly. Some mills and their brokers are betting that warmer weather will bring out more shreddables as it usually does this time of year. But dealers warn that intake has been steady throughout the winter months because of the absence of any major snowfalls and the milder temperatures. Don’t look for a spring scrap flood this month, they say. Other factors are also at work and these include:
• A modest rebound in price and demand from offshore mills could quickly soak up any overhang of shredded in the coastal regions. This includes both bulk cargo shipments to the Turkish steel mills and sales to the Indian traders who buy containers filled with shredded on all three coastal areas of the U.S.
• Supplies of industrial scrap are fixed by the pace of manufacturing. Any increase in scrap demand, either from U.S. mills or the overseas markets, will have to be filled by shredded and other obsolete scrap grades. Some U.S. mills are filling the shortfall in industrial scrap supplies with imports from Europe, but this could be simply a one-time “fix” that could be interrupted by a spike in home demand in those countries.
• A steep price drop of $30 per ton or more often forces dealers to slash their offers as well and dries up the flows of feedstock into shredders. This feedstock drought can last for several months because many of the key suppliers – auto wreckers, smaller scrap dealers and demolition contractors will hold back material for a month or two to see if prices will rise even higher.
Despite shredded’s sensitivity to price changes, other factors influence the scrap market and serve as the wild cards that affect both price and supply:
• Midwest mills hoping to supplement their shredded needs with cheaper remote supplies from exporters and coastal shredders face both rebounding offshore demand and the chronic transport problems of getting the railroads to provide enough gondola cars to these East Coast suppliers and persuading some mills to unload the cars quickly so they can be back in the car supply pool.
• Supply of obsolete scrap is a seasonal phenomenon. If prices decline through thesummer and fall as they did two years ago, that could impact supply next winter. That year’s “starve the shredders” market saw prices plummet and flows into dealers’ yards reduced severely as the winter began, a time when supply is diminished.
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