Mike Marley’s Shredded Power #83
This month’s ferrous scrap price slide, following three consecutive months of domestic price increases (and a contradictory decline in overseas prices), came to an end last week. Prices paid for busheling and bundles had dipped by $10 per gross ton a week earlier, but were back to January levels and higher in a few regions last week. Shredded scrap and heavy melt were recouping part of their losses as well.
WSEM World Steel Exchange Marketing
Mike Marley’s Shredded Power #83
Busheling and bundles prices rebound on strong demand.
February 14, 2017
Mike Marley (484) 751-5600
Peter F. Marcus (201) 503-0902
Commentary:
First, some sheet steelmakers delayed their buying decisions when dealers balked at the lower offers for prime scrap. But competition for prime scrap has intensified in the South and Midwest this year because of the steady pace of sheet steel sales and new competition for industrial scrap. Brokers and buyers for major flat-rolled mills were paying as much as $340 per ton F.O.B. the barge along the Mississippi River for busheling and bundles shipped to their mills in the South, a Midwest broker said.
Second, Nucor Corp., the largest member of the sheet steelmaking group, has encountered new production problems with its troubled direct-reduced ironmaking (DRI) plant in Convent, LA. The big steelmaker didn’t disclose the problems initially, but instead began to make deals on industrial scrap at “sideways” prices with some large dealers. Word of these deals quickly leaked out to others in the scrap industry. Dealers rejected lower offers from other mills, which then had to ante up to avoid losing that scrap to a formidable rival.
Late last week, Nucor announced that the Louisiana DRI plant would be shut down for five weeks for repairs. It can divert some DRI from its other DRI plant in Trinidad. It may also replace some of this lost melt material with imported scrap and pig iron, but those offshore purchases usually must be made a month or two in advance whereas domestic scrap, even from distant suppliers, usually can be delivered with in a few weeks.
One obvious benefit of such arrangements is that dealers can make a higher return when they don’t have to include freight costs. Competing mills became aware of these purchases and started matching the offers to avoid seeing their shipments delayed; or worse, to have a dealer tell them that he or she had run out of scrap and would not be able to fill the order until next month.
Third, major scrap suppliers in Canada often supply scrap to U.S. mills, but they sold much of their scrap to one or two large Canadian mills last month and planned to do so again this month. That left several of the U.S. flat-rolled mills in the upper Midwest without an additional supply of industrial steel scrap.
Unlike shredded and other obsolete scrap grades, busheling and bundles are a fixed supply. It is determined each month by the stampers and other metal manufacturers that produce this scrap as a by-product of production work like making doors and hoods for new cars. Steelmakers can’t increase the amount of scrap generated by those plants. When these supplies are tight, all they can do is outbid each other for it or buy substitutes like pig iron, DRI or import scrap.
When competition for scrap rises, dealers will pull back from the market.
A Chicago area trader said his company made a couple of last minute deals with several mills that were short scrap, but which now he and other traders in his group regret. The company isn’t oversold and won’t have a problem filling those orders, he said. It has ample inventory on the ground and expects to see a steady flow of scrap from most of its industrial suppliers this month. “But I would rather have the inventory now,” he said and predicted that shredded scrap could climb to $350 per ton on a delivered to the mill basis next month.
Another trader said that while there is inventory in a lot of yards, there is also better demand for scrap and a lot less scrap in the supply pipeline. Dealers are not holding a lot of inventory these days. His yards finished January with their inventories at the lowest level in more than six years. “We sold what we wanted to sell”, he said. He could have sold more, but stopped because he wouldn’t be able to deliver that scrap until the end of February or the beginning of March when prices will be going up and cost more to replace the inventory he sold.
The mild weather over the past two months in the Midwest and the East, along with higher prices, has kept obsolete scrap flowing into many yards through the winter. And several dealers said they don’t expect a slowdown as long as the weather remains moderate through the next six or seven weeks. That could provide ample supplies of shredded and heavy melt for both the domestic mills and the export market. But it may also mislead a few buyers and brokers in April. They may be looking for a big obsolete supply blip and the usual price drop in the Spring. That might not occur this year.
Turkish steelmakers, however, are buying more from European suppliers than from U.S. East Coast yards. Their last deals on this side of the Atlantic were done more than a week ago and included one cargo that was solely cut grades like heavy melt and no shredded scrap. An East Coast trader said the exporters and coastal shredders were more interested in selling their output in the U.S. because the prices were better. Buying prices for export heavy melt at the docks range from $170 and $180 per ton, the same prices that was being quoted to suppliers two weeks ago, he said.
A New England export yard sold a cargo to a Turkish mill a week ago at $248 per tonne for the 80/20 heavy melt and $253 for the shredded. That put the price for the shredded portion of that cargo at about $220 per tonne on the docks. That’s about $20 per gross ton below the comparable F.O.B. prices exporters could obtain from U.S. mills. Steelmakers in the Middle Atlantic region paid between $260 and $265 per ton delivered for shredded scrap this month while prices in many of the Midwest cities are between $280 and $290 per ton.
Having all the busheling isn’t always the blessing of abundance. There can be too much of a good thing even in scrap that can alter supplies and act as a “wild card” in figuring production costs. These are:
• Busheling may be cleaner, but it often lacks one attribute the melt shop managers’ value–density. Thus, loading busheling scrap into an EAF might require three or more buckets to fill the furnace while shredded may need only two. Using busheling can stretch out tap-to-tap time and generate less steel output, and in some mills, mean a lower production bonus for the melt shop foreman and his crew.
The Nasdaq Futures Exchange (NFX) expects to start trading in the Midwest US shredded scrap index futures in late Q2 2017. The contract will trade in 20-gross ton units with the prices settled on the 11th day of each month against the TSI Midwest US Shredded Scrap Index published by Platts. For additional information about shredded futures trading, contact John Conheeney at WSEM. His phone number is 201-503-0922 and his email is jconheeney@wsemgroup.com.
Note: Each issue, Mike Marley gives his opinion on the one-month steel scrap price outlook. He explains the key reasons for his view and highlights the “wild cards” that might cause him to be wrong.
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Scrap Metal Prices
Copper Scrap | ||
Alternator | 0.32 | $US/Lb |
#1 Copper Bare Bright | 3.75 | $US/Lb |
Aluminum Scrap | ||
356 Aluminum Wheels (Clean) | 0.73 | $US/Lb |
6061 Extrusions | 0.64 | $US/Lb |
Steel Scrap | ||
#1 Bundle | 460.00 | $US/MT |
#1 Busheling | 480.00 | $US/MT |
Electronics Scrap |