NEW YORK Ferrous scrap prices are likely to continue weakening next month as the market attempts to test the floor, and there is speculation that at least three steel mills will make minimal or no buys in July, sources told AMM.
Several scrap dealers have already lowered prices at the scale in anticipation of a price drop in July, market players said Tuesday on the sidelines of the Steel Success Strategies XXVII conference in New York, co-hosted by AMM and World Steel Dynamics Inc. (WSD).
Different sources speculated that the drop wouldnt be as severe as Junes and could range between $15 and $30 per gross ton on prime and obsolete grades of scrap.
"We have lowered prices at our yards by about $20 per gross ton," one scrap dealer said. "Flows dropped a little bit after we lowered our feedstock prices at our yards because some competitors are still paying higher prices. But wed rather have less scrap and more cash going into July."
A second large dealer said he expected scrap prices to fall between $20 and $30 per gross ton in July.
"A price drop is certain. What will define the extent of the drop is how much lower the market can go before scrap flows stop," he said. "If suppliers feel weve reached a floor, they will hold onto scrap, and that could quickly reverse things."
A third source was a tad more optimistic, agreeing that a drop was imminent, but expects it to be in the $15- to $20-per-ton range. "I dont know how much lower it can go," he said. "Were trying to buy the scrap coming into our yards at these lower prices but are seeing resistance."
Later, at a panel discussion about whether the industry was reaching the end of an era of high prices for raw materials, steel producers and analysts suggested raw material prices would soften in the near term, but none would predict significantly lower prices.
The panel offered a global outlook on raw material prices, with OAO Severstal chief executive officer Alexei Mordashov saying the era of high prices of raw materials wasnt over.
He expressed confidence that the same demand drivers that have contributed to higher prices this past decadenamely, growth in emerging economies like China and Indiawill continue, albeit at a more modest pace.
"We are confident that demand trends will continue to grow in the future," he said. "As part of Chinas urbanization program from 2002 to 2011, 200 million people moved from villages to cities. Yet even now, half of the population lives outside the urban areas. This urbanization is expected to continue."
Mordashov added that he expects more growth in the global middle class, estimating 150 million people will join the Chinese middle class in the next six or seven years alone.
"Growth in emerging economies could go down, but these economies have showed strong resilience. ... They will continue to grow," he said. "Chinas growth rate of 7 percent is relatively low for them, but it still good enough for demand."
Tsou Jo-chi, chairman of Kaohsiung, Taiwan-based China Steel Corp., said he thought the recent declines in commodity prices were only a correction.
The huge potential of growth in India and China will contribute to the "super cycle of high commodity prices," Tsou said, agreeing with Mordashov, noting that his company has a strategy to lower its raw materials costs by becoming more self-sufficient.
"Our aim is to reduce cost(s) by $140 million this year," he said. "Until May, we were on track to meet this goal."
John Lichtenstein, managing director of Accenture Ltd.s metals industry group, told delegates he expected raw material prices to soften, but "not enough to restore prices to pre-2005 margins." He was referring to margins between the cost of raw material and sales prices of finished products.
Growth in Chinese steel demand will slow from its current rapid pace to a more sustainable level at some point, he said, but demand is likely to stay high over the next decade or so.
By 2025, China will be looking to achieve 65- to 70-percent urbanization rates, Lichtenstein said. Chinas urbanization rate stands at 50 percent at the moment, "so steel demand still has growth drivers," he added. "Demand is less likely to dip before 2020."