PITTSBURGH Domestic scrap prices are showing no sign of erosion in the near term as strong global demand and a decent U.S. appetite, among other factors, will work to keep prices from sliding, according to Sims Metal Management Ltd.s top executive.
Daniel Dienst, chief executive officer of the worlds largest recycler, told inventors during a conference call Wednesday that after months of weakness, domestic scrap prices appeared to have found their floor in July.
"We are a bit on the flip side right now where the U.S. market has firmed significantly and moved higher. Some of that is being driven by disruption threats due to low river levels," Dienst said.
Low water levels on the lower Mississippi, Ohio and Arkansas rivers are pushing up freight costs and threatening to crimp scrap availability in some regions, sources told AMM earlier this week (amm.com, Aug. 21).
Meanwhile, export demand remains strong, helping to keep a floor under prices, Dienst said.
"There have got to be 40 to 50 cargoes to be bought (globally) in the next four to five weeks," he said during a call to discuss the companys Australian $521.4-million ($546.25-million) net loss during the 12 months ended June 30.
About 48.3 percent of Sims overall annual revenues are derived from ferrous trading, according to its earnings.
Scrap demand appears particularly strong in some parts of Eastern Europe and Asia, he said.
"Look at the market right now, and there is not a tremendous amount of scrap laying out there. The (Mediterranean) consumers of scrap are probably as short as anyone has seen in quite a period of time," Dienst said. Meanwhile, Turkey will be coming out of its Ramadan holiday and looking for scrap, he said.
South Korea also needs scrap, and scrap prices in Japan have increased by some $25 a tonne in the last few days. "We are coming out of summer and people are generally short going into winter," Dienst added.
Dienst noted that while the ferrous export market often mirrors the iron ore market, that is not the case at the moment. "There has historically been a high correlation between iron ore and ferrous prices, but there are always periods of time that there are extreme dislocations with that relationship. The deep sea ferrous market is outperforming the debacle in the iron ore markets," Dienst noted.
In addition to global factors and falling water levels on the Mississippi River, the potential for a labor strike at two major integrated U.S. mills is also bolstering the likelihood that scrap prices will not retreat in the near term, he said.
U.S. Steel Corp. and ArcelorMittal USA Inc. are currently in separate negotiations with the United Steelworkers union in an effort to reach new labor deals before their existing contracts expire Sept. 1 (amm.com, Aug. 22).
If no deal is reached, its possible one or both companies could experience a strike or a lockout. That fear has caused some steel buyers to re-enter the market to stock up on metal, he said, giving steel prices some support.
"It is forcing people back into the market," he said.
Additionally, a strike at one of the major integrated mills could boost demand at their mini-mill competitors, keeping scrap demand elevated, sources have told AMM.