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Ferrous scrap market in negotiation stalemate

Keywords: Tags  ferrous scrap, scrap prices, stalemate, Sean Davidson

NEW YORK — Ferrous scrap negotiations across the country hit an impasse Tuesday as buyers and sellers failed to find common ground on price increases for March.

In the bellwether markets of the Midwest, market participants said many dealers in early talks offered prime scrap at prices $40 per gross ton or more above February levels, while most mills stood their ground with bids at up $30 per ton.

A few low-volume trades were reported in northwest Indiana Tuesday at up $40 per ton on prime scrap, although there was no clear visibility on where final prices would settle, sources said. Bids from mills in the Chicago region reportedly were $10 lower than in northwest Indiana for prime material.

Sources said obsolete grades of scrap are not likely to achieve the same increases as prime scrap this month as the market will attempt to return prime scrap to yield-based premiums over cut grades.

"The mills are hinting at up $30 for shred, up $20 to $30 for cuts and up $40 for prime. We are looking for up $40 to $50 across the board," one Midwest dealer said. "I think we could get some of our consumers to pay up $40, but we are not sure if that is enough."

The sentiment was echoed by several other dealers in the region.

"(Dealers) are really pushing the envelope," said one broker, noting that he thought the hype was overblown. "Let’s be clear, this market is way over-heated for the demand that is out there. There is a reason guys kept shipping in December and January—there is very little confidence in steel as a core fundamental to our business. Some consumers are pulling out of this market all together. That may be the best move at the end of the day."

Several dealers contacted by AMM said Tuesday they would hold off for better offers, and mill buyers responded with an identical approach, keeping most negotiations at a standstill.

"As I have responded to all the guys trying to stir the pot in the Midwest and Detroit, I have yet to see deals done at up $45 to $50. We would be a buyer at up $30. Guys need to go home and let their steam out," said a buyer for one producer. A buyer for a second mill called it a "stalemate," while a third buyer said no mill wanted to be the first to make a move.

But while some mills claim the forecast market run-up appears to be overblown, Midwest dealers contend supply dynamics are driving the market, citing a snowstorm in the region this week as one reason for a bigger push.

Outside of the Midwest, early indications also suggest a considerable rise in March prices, sources said.

In Ontario, for example, mills are said to have strong buying programs this month, meaning prices could be on the higher end compared with Chicago. "Mills are in a quandary and they have no choice because all the mills have pretty strong programs. Mills are not in a position to try for less," said a broker selling into the Canadian market.

Scrap markets in the Ohio Valley and the Southeast are still very much a moving target, but early deals are up considerably over February prices, sources said. The question is whether the first buyers into the ring will pay the best price or whether the other mills will be able to secure matching deals.

"Nobody wants to buy at the wrong price and nobody wants to sell at the wrong price. It is a Mexican standoff, and we are dragging our feet because we don’t know where it is going to end up yet," said a broker in the Southeast.

Birmingham, Ala., also is still very much unsettled but there are already two indications that the market has strength, the Southeast broker said. "One mill’s brokers are the first to downplay any market, and they are not trying to play games this month. Another mill is coming into the Southeast and trying to get their needs," he said.

In Cincinnati, one mill made a decent sized buy at up $40 per ton on prime material and up $30 on cut grades and shredded scrap. Sources said they expect other parts of Ohio to be up a minimum of $40 per ton, and possibly as much as $50, but no deals have been made yet.

"I’ve been offered up $45 (per ton) on primes but haven’t taken it yet. The mills dinked around last month and didn’t buy their needs. They are trying not to act desperate, but they are. They are calling suppliers in Canada and New York and offering special pay terms to get their needs," said one industrial supplier to Ohio mills.

Meanwhile, two Pittsburgh mills entered the market up $40 per ton on prime grades, while some plate and structural scrap has sold at up $30.

In the Northeast, sources said early numbers put out by one producer point to an up-$15 market, while in Houston the trend could be similar, according to a Texas dealer. Texan dealers outside Houston said they will push for up $25 to $30.

Lisa Gordon, Pittsburgh, contributed to this story.

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