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Tight scrap flows seen buoying January tags

Keywords: Tags  scrap, ferrous scrap, Sean Davidson, Lisa Gordon

NEW YORK — Tighter scrap flows due to cold weather, reinvigorated demand from steelmakers and strengthening export markets will likely bolster domestic ferrous scrap prices in January, market players agree.

Every scrap market participant surveyed by AMM this past week on their January outlook predicted steady or positive pricing trends for the coming month, with about half of respondents expecting a flat to slightly up market and the other half expecting a larger increase of about $10 to $20 a gross ton.

Only a small number speculated that prices would rise more than $30 per ton when January scrap pricing settles, while not a single player forecast a pricing decline.

But those predictions could change if a major event—such as a large snowstorm, a "fiscal cliff" shutdown or a possible export dock labor strike—comes into play in the next several weeks, sources said.

In the Midwest, for example, several sources said January pricing will largely depend on how much snowfall the region receives over the next 10 days, as well as how quickly transportation along the Mississippi River recovers.

"We do have this large winter storm hitting this area. ... It looks like Wisconsin and Minnesota will be hit the hardest," one source said. "If export takes off, we could see a stronger January than expected, or if more of the country is hit with winter weather on a wider-range basis."

Others said demand from mills—both domestic and foreign—will play a larger role than the weather.

"I suspect that supply will tighten as the export market appears to have recovered in recent days. Mill operating rates are posed to be strong in January as reports of mill lead times are well into January. Given these developments, domestic scrap prices could likely move up a minimum of $15 to $20 and potentially higher on some grades," said a second source.

One bullish supplier speculated the increase would be between $20 and $30, based on demand.

"I think the mills laid back in December and didn’t want to build inventory early. January has always been an up month. I’ll be amazed if it isn’t this time," he said. "Enough severe weather might push that up to a $40-or-better jump."

Such a run-up, however, could mean a sharp pullback the following month, he said.

"I predict the dealers will empty their yards, flood the market and set up yet another February drop, probably $30 to $40. It would take one heck of a freeze-down from Iowa to Pennsylvania to prop up February," the supplier added.

But other suppliers in the Midwest are not so confident that January prices are set for a pop.

"The mills appear to have adequate supplies on hand, and with hot-rolled coil pricing softening by approximately $20 (a ton), there is no appetite on the mills’ part to pay more money to secure supply of scrap. There are reportedly large inventories of prime overhanging the market in Chicago. (Some Midwest mills) stand to gain market leverage if the Mississippi (River) closes. This also works into their thought processes," said one supplier, who predicted a flat market.

Weather alone will not be enough to support scrap prices, in his opinion.

"The mills are not fully booked for January and will face downward pricing pressure early in the month from the warehouses. Weather could drive the market higher, but the current storm is likely to have no effect as most dealers expect flow to slow (this week) and to be running with skeleton crews and little industrial scrap for the next 12 to 13 days," he said.

In the Mid-Atlantic region, most speculated there would be an increase of $10 to $20 a ton for January, propelled by a recent two-week spurt in bulk exports.

However, one East Coast exporter was not so bullish. He expects the uncertainty surrounding the fiscal cliff to temper any price gains, and, as a result, he expects that December’s prices will simply roll over into January.

"Some people feel it will jump $20 or more, but I do not see it that way. There is too much uncertainty at this time. Steel service centers are not going to make any major moves, heavy equipment manufacturers are not going to go out on a limb and construction contracts will sit on the shelf," he said.

A supplier to eastern Pennsylvania mills said his original bullish projection is also losing steam. "The general consensus a week ago was that pricing would be headed for a considerable boost of $24 to $35. The optimism has faded a little bit and we might see a smaller increase between $5 and $15," he said.

In the Ohio Valley, one mill buyer said he senses the market will be flat to up $10, while a second Ohio mill buyer said he expects that prices could push up $20.

In the Southeast, scrap suppliers are largely expecting prices to move higher with mill demand outpacing the flow of scrap into dealers’ yards.

Meanwhile, in the Southwest, mills are expected to make full buys and prices appear to be headed sideways in spite of low inventory levels. "We are playing in the dirt over here. We may not finish this month’s orders. The flow is really slow and (there’s) not much coming in so will probably sell less because our yard inventory is low," said a supplier to the Southwest mills.

Lisa Gordon, Pittsburgh, contributed to this story.

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