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Scrap market unsettled as suppliers fight drop

Keywords: Tags  ferrous scrap, scrap prices, sean davidson

ISTANBUL — Dealer resistance in the Midwest to sharp downward movements on ferrous scrap pricing for February has prolonged trading in the region as buyers and sellers continue to negotiate a middle ground.

The early entry of a Chicago mill at down $10 per gross ton on all grades compared with January prices initially brought hope to some suppliers who had anticipated a weaker market of as much as down $20 per ton or more this month. But other sources said the mill had bid at stronger-than-expected numbers late in the day Feb. 4 to cover a short position on certain grades of obsolete scrap, including plate and structural and heavy melting scrap, and did not appear to be indicative of the region’s overall trend.

"Down $10 is the best price yet," said one seller in Chicago, who noted that mills were "slow coming out" but appeared to be finishing up their February buys by the end of the day Feb. 5.

A second source agreed that the Chicago mill’s unexpected $10-per-ton drop was not characteristic of the overall market, noting that "they were a bit cheaper than a lot of the market last month and they need those grades. Heavy melt is tight for sure."

A third source noted that the mill initially bid down $15 to $20 but scaled it back after receiving "a lot of pushback" from suppliers.

In Detroit, the February market appears to be shaping up closer to projections, with market participants reporting most mills coming out with bids down $20 on all grades, although few dealers confirmed selling any tons at that level so far.

However, a buyer at one Detroit mill said he was confident he would still secure his tons at the prices he was looking for. "I think enough scrap is available in the area. There’s a reduced buy due to February being a shorter month and we have a decent inventory level," he said.

In St. Louis, at least two mills reportedly were in the market as of Feb. 5 with bids at down $15 per gross, although sources reported few confirmed transactions.

A Midwest broker agreed that the market was "very much underdeveloped" by Feb. 5, despite earlier expectations that most major markets could settle by the beginning of the week.

"Many mills in the geographies you mention have not settled but want ... others to believe they are having sweeping success buying at down $20. Yes, Ohio is about 50 percent traded but it’s far from over. A lot of dealers are not convinced the market is down the full $20," he said. "I think we have a protracted battle on our hands before we are completely settled."

If Midwest mills succeed in achieving the full $20-per-ton drop many appear to be targeting, they could feel the effects of their aggressive purchasing strategies next month, one Midwest shredder source said. "I was really surprised at the down market with all the snow and cold weather. I have a feeling this could all come back to bite them in a month or so."

Outside of the Midwest, early trading activity also suggested a softer pricing environment in February.

Weaker order books and limited buying needs worked in the favor of Cleveland mills, sources said, with two steelmakers entering the market at down $20 per ton across the board for all grades. Sellers into Cleveland were willing to sell lower because they recognized that mills had cut their buying programs, sources said. One mill cut its program in half while another reduced its buy by 20,000 tons, AMM understands.

Some sources predict Pittsburgh will emulate Cleveland when it settles for February, while others believe prices there may not be down the full $20 per ton. "Western Pennsylvania and Ohio is the weakest part of the country right now," one scrap source said.

Meanwhile, expectations that the southeastern scrap market would settle by Feb. 5 dissipated as the market started to show some signs of strengthening due to dealer resistance.

In early sales into Birmingham last week, a mill buyer was able to secure prime and obsolete grades at down $20 per ton. The southeastern mills are not especially hungry this month, with one mill not accepting scrap until next week, another mill in the midst of an outage and a chain of steel mills reducing its overall intake by 40,000 tons for February, AMM understands.

"The mills just don’t need that much scrap. I bet the melt rate down here is under 70 percent," said a supplier of prime scrap to the area.

Nonetheless, last week’s discounted buys of down $20 appeared to dry up at the start of this week as scrap sellers in the region began to put up resistance, sources said.

In Texas, sources said mills were yet to bid on scrap for February, with speculation varying from a sideways to a down $20 market.

"There may be ample scrap back east, but through Oklahoma and north Texas the yards are bare," one Texan supplier said.

In Philadelphia, market participants said one mill was trading at down $5 on heavy melt and plate and structural scrap and down $15 on No. 1 busheling and shred. A second mill reportedly is in the market with a limited buy at down $10 to $15, while a third mill has so far traded only shred.

Sources said they expect the market in Philadelphia to settle Feb. 6, with most sources expecting mills to succeed at completing their buys at their original bid levels.

"I think they will get covered since everyone is quoting the same price. Even though scrap flow is dismal, the dealers will sell enough to generate some cash flow and that should take care of the mills since their order books are just so-so," said one Mid-Atlantic source.

Lisa Gordon, Pittsburgh, contributed to this story.

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