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April ferrous scrap prices could trend lower

Keywords: Tags  ferrous scrap, scrap prices, scrap exports, scrap imports, Sean Davidson

NEW YORK — It has been only a week since ferrous scrap prices in the benchmark Chicago area settled for March, but some market participants are already making forecasts for April: a sideways to slightly down pricing environment, depending on the region, following this month’s double-digit bounce.

Scrap metal deliveries completed by the last week of March will be the real gauge of next month’s scrap prices, several market sources said, with most dealers agreeing it is still too premature to discuss April’s market, let alone dub it weak.

But some market players are nonetheless eyeing other external factors as they attempt to forecast the market’s next move.

A week after scrap markets across the United States recorded monthly increases of anywhere between $15 and $45 per gross ton, depending on location and grade, a few scrap buyers said they have continued to receive offers on shredded and prime scrap at prices below March settlements, leading them to speculate that prices could dip in April.

Minimal export activity off the West Coast and a sideways trend on export prices to Turkey this week lent further support to early speculation that domestic prices could soften, sources said.

A buyer for one domestic steel producer said April’s market in the South for primary scrap like No. 1 busheling will be further impacted by the arrival of two bulk vessels from Europe this month.

An informal poll of the market by AMM showed that the consensus between dealers and mill buyers leans towards a "sideways" to "down $10 to $20" market in April in specific regions like the Midwest, a speculated move that some have dubbed a "correction."

The best indicator of April prices, however, will be scrap flows at dealer yards and the tons mills receive from this month’s trades, buyers and sellers said, noting they are watching the trends closely.

"February scrap flow sucked. It is only just now starting to slowly improve. I’ve seen a few yards this week and all had lower-than-normal inventories," a mill buyer in the South said. "My concern is that if prices drop in April, we could see a repeat of February—flow slowing down. Certainly I see no reason for prices to increase, and would call it a soft sideways at this point."

A scrap buyer for a Midwest mill said he had since purchased some tons at prices lower that "what we paid in March," suggesting to him that prices could be on the decline. "We have also had additional offers over the last few days that we have turned down. ... (M)argin squeeze (is) the major issue for mills. Currently, we see the market down a minimum of $10 to $20 in April," he said.

A buyer for another Midwest mill projected domestic mill demand will remain steady in April, but noted that the fundamentals could get out of balance if the March price increase leads to heavier material flow.

"The question remains if supply and demand are in balance or out of balance. The uptick in the market may generate enough flow to push it out of balance if the import information is accurate and the export market remains soft," he said.

But the reported prime scrap imports into the South shouldn’t be enough to throw the balance off, he said. "Given the volume of primes traded, two vessels won’t have a huge impact on the total market. It should have an impact on the local markets it is brought into," he said.

"I have seen a steady decline in total prime scrap being offered to me over the last few months so it doesn’t feel like prime scrap is overhanging the market like it had been. There was also a slight widening of the spread between prime and secondary this month, which would seem to support the fact that the overhang is not as severe as it was when the compression occurred," he added. "It’s a little early to try to predict April, but given the large jump we just saw in pricing, I could see it coming back some."

A source at one of the country’s largest scrap companies said the flow of material to processor yards continues to improve with higher offer prices and better weather. "(I) expect supply will be adequate for domestic demand levels. Domestic demand will be very regional. ... (E)xpect the Chicago market to be level with two consumers who purchased minimal scrap in March needing to restock," he said. "(I) expect a soft sideways move for April."

One broker claimed that mills will be wary of sending scrap markets down in April even if it is only to help announced finished product price increases stick.

"You could see $10 to $15 coming off the top. (But) I would caution against a January price return. Pipeline flow into yards and mills need to be reconciled. We are at March 14 and it’s not there yet. Spring, however, is right around the corner and that will have an effect," he said. "Mills need to be cautious—they are all fighting for steel prices to stick. They do not want to portray a scrap market in decline just yet."

The broker said it also was too early to write off interest from Turkey, despite others claiming otherwise. "Turkey is still here. They have interest and that fact has relevance," he said. A sideways price move "is not big enough to get people bearish. I’m not saying that the Turks will drive April, but they have not gone away just yet."

A Midwest scrap dealer said busheling prices have already lost about $10 per ton on bids and offers this week, while a broker in the region claimed some mills and brokers were intentionally putting out weak signals.

"One broker was out offering to buy small volumes at down numbers. Maybe some mills are just trying to push an agenda. I think scrap supply is in balance with demand. Flows are not very good and some factors like iron ore pricing are true, but it doesn’t negate the fact that there’s very little scrap out there," the Midwest broker said.

"The only real question remaining will be if the mills are receiving the scrap which they purchased or if shipments remain slow," a Chicago dealer said.

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