PITTSBURGH The pricing outlook for the domestic ferrous scrap market in June appears to have weakened further as a strong U.S. dollar, sparse export opportunities and an oversupply of scrap threaten to keep the market under pressure, buyer and seller sources have told AMM.
A growing number of market participants said they now expect June prices will fall by a minimum of $20 per gross ton, with brokers at mill-owned scrap companies said to targeting a drop of as much as $30 to $40 a ton. That compares with a more bullish pricing outlook less than two weeks ago, when U.S. steel mills, dealers and brokers told AMM they were anticipating a smaller drop of between $5 and $20 per gross ton across all grades (AMM, May 18).
The expected decline in scrap prices comes as steelmakers continue to face an onslaught of imports as well as domestic oversupply, keeping steel prices under pressure. As sheet prices fall, there is additional motivation from producers to lower their input costs to keep finished steel margins competitive.
"My take is there is nothing to support the (scrap) market. I believe new steel sales are falling at least as fast as scrap metal procurement levels this spring, (and) with the discouraging export market, more scrap is available to inland mills," said a Missouri-based recycler.
Additionally, while mills will be in the market for June, many will have limited buys due to the typical summer slowdown and planned maintenance. At the same time, some grades are still said to be readily available.
"We have not been able to sell everything we have wanted to sell over the last few months. Prime scrap appears to be in surplus and has been for the last few months. Heavy melting scrap and shred have not been but may also be in excess in June," said a Midwest recycler.
Prime is especially in surplus in Canada, the Ohio Valley and the Midwest, a second broker said, while excess shred and cut grades are said to be blanketing the entire Northeast.
As a result, mill-owned and independent scrapyards across the country have been preparing for further deterioration in prices and are said to have lowered their buying prices at the scales.
"I lowered my scale prices by $30 (per ton) this month and am going to cut it again. I dont care if the material comes in or not. I am hunkering down for the summer because I am not going to be a bank for the steel mill," said a Southeastern shredder operator.
Sources at scrapyards said they are scurrying to get their sales delivered to the mills by May 31, because the expectation of a softer June market means mills have little incentive to take any lingering May material late.
Its still too early to tell where June prices will settle, but buyers and scrapyards both say they are anticipating a slow week of negotiations. "No one will be in a hurry to settle, because the market is headed down," said a national broker.
Meanwhile, there is little chance that exports will pick up the slack and tighten the market as export docks have been lowering their buy prices as well on a lack of new orders (AMM, May 25). The strong U.S. dollar is only working to drive what little business there is to Europe, where the weaker currency has resulted in better opportunities.