NEW YORK A struggling ferrous scrap export market and weakness in several finished steel product segments have led many to speculate that the domestic scrap market will be weaker in May.
In an informal survey this week, nearly half the market participants contacted by AMM said they expect scrap prices could drop by between $15 and $20 per gross ton next month, with about one quarter saying they could drop even further and the remainder undecided on their May outlook.
An equal number of mill buyers and scrap suppliers said they expect monthly prices are poised to soften by $15 to $20 per ton next month, with even some sellers and brokers suggesting that prices for some grades could fall by as much as $25 per ton from April levels, which were down about $20 from March prices.
In Detroit, at least one steel mill reportedly has already concluded some deals for obsolete grades of scrap at down $20, but a majority of buyers and sellers said they had not heard of or concluded any recent transactions.
Many market participants in Illinois and Indiana said they are still uncertain on price direction due to logistics issues caused by recent river flooding (amm.com, April 23). Some sources suggested that transportation issues along the Illinois and Mississippi rivers could have a negative impact on scrap flows and offer some support to May tags, while others speculated that the impact would be minimal.
"Our logistics guy says that no one will be talking about river issues in seven to 10 days," said the buyer for one steel producer. "(The) weather forecast has improved, but people in Chicago and St. Louis (are) saying local scrap could be down more because scrap will be trapped in the market, and scrap elsewhere will fall less because of less availability."
A buyer for another Midwest steel producer said he had no knowledge of any mid-month transactions, but speculated that May prices could drop between $15 and $20 per ton in Chicago and Cleveland due to a lack of export demand, lower consumption by mills and a good flow of scrap.
"I had not heard of the mid- or late-month deals," said a buyer for a third producer. "I know Ive been offered additional tons from a couple of my smaller suppliers just within the last week. I declined to take them in April, though, because were feeling like it will be another down market in May due to continued demand and pricing weakness."
Buyers supported their speculation for a weak May scrap market with talk of low demand and prices for several finished steel products.
"I would expect a return to February pricing levels or lower," a fourth buyer said. "Demand continues to be softer than normal overall and obsolete scrap supply tends to improve this time of year as the weather improves. Unless export picks up appreciably, I cant see scrap doing much but softening over the next month or two."
Some brokers and dealers agreed with this view, although others suggested that flows into dealer yards were not strong in April.
"We are hearing that flat-rolled order books are very weak and are also hearing many mills are taking production outages to bring production in line with orders," said a source at one major scrap company.
"Expectations are for markets to drop $10 to $20 (due to) lack of export, shorter mill order lead times and good April scrap shipments," a Chicago dealer said. "Flooding may be an issue, but those processing yards which are affected are mostly smaller dealers."
A Midwest broker said it is possible that flows into many yards in the region are not as strong as they typically are this time of the year, but suggested there is still "plenty of flow in this market to meet demand."
"Demand without a doubt is sagging and does not look good for the next couple of months. Steel imports are also roiling domestic markets. We have all concluded that there is too much steelmaking capacity online for todays demand. That, coupled with better scrap flows and no export activity, is a recipe for a falling scrap market," he said. "Frag is being led down by a couple of big shippers. The down $20 to $25 on frag and obsolete grades will stick and spring weather has increased flow into yards."
The Midwest broker said some dealers have minimal inventories because they ship everything they can when they dont trust a market to hold. However, supplies of prime grades of scrap are tighter, he said.
"Consumers have really pressured No. 1 busheling and there is not the overhang in this market that we saw for several months in 2012 and early 2013. If mills continue to focus on that grade and buy it to near-extinction, they will then need to shift their focus to frag and plate and structural scrapalternatives to primewhich could bottom a market," he said. "Dealers have a very limited amount at the moment but can cling to the fact they have little inventory and they know mills are pressuring busheling. Those two factors and an export market that may come back is all they have today."
That good old supply-and-demand equation seems to put the number at down $20," a fifth buyer said. "Most scrap dealers are on board with this, but will fight for something less using the low inventory and flows through their yards to help justify it. Export markets are quiet so I really dont think there is anything holding this market up right now with the overall metalworking industry still running poorly. I dont think anything will officially happen in the Midwest until the latter part of next week."