NEW YORK Midwest ferrous scrap trading kicked off in earnest May 2 in such key regions as Chicago and St. Louis, with prices closely following downward trends established a day earlier in nearby Detroit.
Market participants across Illinois, Indiana and Missouri said several dealers willingly accepted a price drop of $20 per ton across several grades, with shredded sales likely to shed even more ground when the dust has settled.
An earlier expectation by a few players that prime grades would not drop as much as obsoletes and shred due to a rumored supply tightness has not held true in early sales, according to several sources, with some noting that shred appears poised to drop more than primes only because of better shred supply, not lower prime supply.
"It seems like most sellers are willing to do down $20 today without much discussion. I could see our market settling by tomorrow unless some of the consumers try to push it down further. Were seeing a bit of an overhang in shred tons. ... As far as primes potentially being tight, I dont believe we have seen that, and all the deals Ive heard have been down across the board," said a source at one large Midwest steel producer.
At least three producers in the Midwest region have reportedly completed their buying programs at anywhere between down $15 and $22 per ton from Aprils levels depending on grade, with the remaining producers expected to conclude trading by May 3.
"Down $20 seems to be pretty much where things are going to trade in all markets," said a buyer for a second producer, while a third buyer said the Chicago market was caught off guard by the surprise early entry of one mill on May 1.
"(One mill) entered yesterday, which caught myself and other buyers here off guard. There was no reason to act hastily since suppliers and mills are on the same page with pricing, given the deteriorating conditions," he said.
Many dealers and brokers were also surprised by the early shakeout to Mays scrap dance.
"I am pleasantly surprised," said one seller for a large Chicago-area dealer. "The fact that it happened quickly indicates perhaps theres some sanity out there since mills are tempering taking it down too much because they know the impact it has on their sales prices."
Sources said two large market makers were taking their time to complete their buying programs in the hopes of securing larger price drops, but many dealers said that they would not accept drops of more than $20 per ton.
Further east, one mill in Cleveland settled at down $20 across the board, with other mills still trying to fill their needs. It is unclear whether mill buyers were spooked by the fast pace of the market, but some undisclosed factors have managed to stall the dealmaking, sources said.
Sources indicate Pittsburgh will consume three times as much prime scrap this month as it did in April, and No. 1 busheling prices looked poised to drop only $10 a ton as a result. Shredded scrap is plentiful and is expected to retreat by more than $20 a ton, sources said.
Cincinnati also appears to be on course to settle at down $20, with mills closely watching their order books. "No one is taking a big position because they dont want to be caught with a lot of scrap as business is not robust," a Cincinnati mill buyer said.
Mills in Birmingham, Ala., were still finishing their buys May 2, but it appeared the market will largely follow Midwest trends. After successfully securing enough scrap at a $20 discount, mills were trying to pick up tons at even better prices, according to sources who also said mills are not taking big inventory positions.
Lisa Gordon, Pittsburgh, contributed to this story.