PITTSBURGH A multi-month
slide in prime scrap prices looks poised to continue, with
market participants expecting premium grades to take the
biggest hit in June.
"The $20 a ton we were talking
down on prime last week has gone way past that number at this
point. There is an oversupply that will remain for at least 60
days," a Midwest mill buyer said Friday.
Players in the market are now
projecting that prices could fall by as much as $35 per ton in
some regions when mill buyers return to the market Monday to
begin their June business.
"I have been steadily offered
primes at lower numbers starting a week ago Wednesday," an
eastern broker said. "Offers came in at $435 a gross ton, then
$425 and now $420, which would be down $35. Dealers are very
willing to lock in orders at to-be-determined prices."
While shredders are feeling
margin compression for obsolete grades, the prime players are
facing their own challenges: Busheling and bundles generally
are purchased on contract, so many recyclers are obligated to
make monthly purchases regardless of demand, sources said.
The oversupply situation was
heightened in the fourth quarter, when a major mill began to
import prime scrap from Europe (AMM, Jan. 9). "Our
domestic (market) never really recovered from the oversupply of
prime," an Ohio broker said.
In the difficult market
environment, the eastern broker said that nervous sellers are
only too eager to cut a deal. "This type of market is scary,"
he said. "We havent seen the likes of it since late 2008
and early 2009."
An analyst agreed that the
market looks set for another drop. "On average, contacts expect
June scrap prices to decline $26 to $35 a gross ton. Prime
grades are expected to decline the greatest due to unwavering
oversupply of prime/substitutes in conjunction with softening
demand from flat-rolled steel producers," Luke Folta, Jefferies
& Co. Inc. equity analyst, wrote in a June 1 note.
If prime grades do fall again in
June, it will be the fifth consecutive month of declines. No. 1
busheling scrap in Chicago, for example, peaked this year at
$517 per gross ton in January before falling steadily to $445
Each month, scrapyards
contracted prime purchases have been worth less when they hit a
market that is increasingly short of takers.
Smaller yards, which may handle
only one or two industrial accounts, are said to be having the
most trouble placing their prime scrap tonnage. "Yards that had
a couple of hundred tons they couldnt place now have
1,000 tons stacked up," the Midwest mill buyer said.
But larger yards arent
immune either. A large southeastern player said he is planning
to adjust his prime contracts to stop the losses. "I am
renegotiating with my suppliers and I am not worried about
competitors taking these contracts away from me because no one
is going to take on these accounts in this environment," he
Sources said many
automakers plans to take shorter downtimes in the summer
to retool their plants also is working against the prime
"The steady flow of prime will
continue. Prompt industrial scrap is aplenty and that will not
cease in the near term," the second broker said. "The prime
scrap market is not in good shape and demand for this grade
looks to be one of the main stresses going forward."