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
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."