NEW YORK Domestic ferrous scrap pricing volatility shows little sign of abating in the new year as the market appears unlikely to adopt new pricing strategies and practices, industry sources said.
Atypical to previous years, ferrous scrap prices swung about $50 per gross ton in either direction on several occasions in 2012, and the vast majority of market players contacted by AMM predict that new month-over-month volatility is here to stay, although opinions varied on the expected size of the swings going forward.
"I do think that as long as steel mills price with only immediate goals in mind, that price volatility is here to stay," one scrap market source said. "If mills priced so as to not disrupt the flow of scrap, prices would be more stable and you would not see the drastic price swings such as occurred in (late 2012)."
"(Volatility) is the one thing we can count on, as evidenced in the last several months prices," a second scrap market source said. "No one flinches today when copper moves 10 to 20 cents (per pound) in a day. Likewise, the steel market can easily swing $50 to $60 per ton as both sides try to maximize profit. Short-term plays tend to rule the marketplace and the cost is price volatility, especially in such a varied world market."
The scrap markets newfound volatility was especially apparent in November, when prime grades in Chicago jumped up $53 per gross ton compared with October (amm.com, Nov. 7). December brought more stability, with most major markets settling flat (amm.com, Dec. 5), but market sources predict that the year-end volatility reprieve was more of an aberration in todays fluctuating pricing environment than the norm.
"These markets are perfect for a gambling personthey should be having a lot of fun now. Exampleup $50 in September, down $50 in October, up $50 in November," a third source said.
But while most market players agree that scrap pricing volatility is here to stay, theres not a clear consensus from where it stems. According to the third source, federal government budgetary concerns may be a factor. "Volatility will only cease when business feels comfortable with government and understands where we are heading," he said.
A fourth source blamed steel mills for the volatility. "The mills are acting very impulsively when all they had to do was keep prices steady with smaller price movements the past three months. Its goofy to drop prices $40 or $50 over a couple of months and then suddenly come right back up," he said.
Other sources said scrap export demand will continue to contribute to price swings whenever offshore consumers battle with domestic mills for feedstock. "Price volatility is here to stay because export demand is fickle and can make a big splash either way by being in or out of the market in a hurry," a fifth source said.
Some market participants said the price swings were detrimental to both scrap processors and steel producers. "Pricing/cost unknowns shrink margins and reverberate to the customer. Its in everyones interests to smooth out the pricing changes," a sixth source said. "I would argue the pricing volatility is a direct result of overcapacity. Slim margins prohibit processors from holding back material until the next buying cycle."
But while most sources agreed that volatility is not good for business, at least one source was hopeful there could be a change in the years ahead. "Nothing lasts forever. While I dont see it happening soon, a period of economic stability could bring pricing stability," he said, adding that a market crash also could help stabilize prices, albeit "at low levels."