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US ferrous scrap prices seen softening in June

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

NEW YORK — Ferrous scrap prices appear to be leaning toward another price drop in June, according to early market speculation.

Although price trends are expected to vary significantly for different grades and regions, most sources surveyed by AMM said they expect a sideways or slightly softer June pricing environment.

"The general consensus seems to be unanimous in thinking that June will show additional softness. This generally becomes a self-fulfilling prophecy," said one broker who expects the price differential between prime and cut grades to widen a little in June.

Most mill buyers and suppliers said they anticipate some Midwest markets to be weaker than the Ohio Valley and Mid-Atlantic, with the South and Southeast expected to fall somewhere in between. The variations will relate to supply and demand balances, which appear to be at equilibrium in some regions and not so far off in others, according to several sources.

A buyer for one steel producer said he expects prime grades in Chicago to drop $10 per gross ton and shredded scrap to fall $15 per ton from May, while prices in the Ohio Valley could trend sideways on prime grades and be down $10 on shred.

Other Midwest buyers and sellers said they expect price drops of anywhere between $10 and $20 per ton in the Midwest, with prime grades likely to trend slightly stronger than shred and obsolete grades. A few sources, however, felt the overall market could trend closer to sideways.

Market participants speculated similar drops of $10 to $20 per ton in the Southeast, Mid-Atlantic and Texas, with prime grades there also expected to perform better than obsolete grades.

The expectation that prime grades might experience less of a price decline than other grades comes as some sources say demand for prime looks likely to rise, even as overall scrap demand is largely expected to hover around the same levels seen in April and May or even come off a little.

Demand for prime grades like No. 1 busheling is expected to rise in June because some mills "came up short" on the grade in May, according to one market source.

A second broker agreed, saying that demand for prime will stay strong because electric-arc furnaces (EFs) are not expected to change their melt. "Most EFs are not going to all of a sudden switch to an all-frag (shred) heat, which is cheaper and has better supply," he said. "Melt shops got used to the drug that is busheling. Yield to value was great. That party is largely over as the grade and its overhang has been tapped pretty much out. We are back to a balanced supply-demand curve on busheling. EFs will continue to pressure the grade for the next few months until we see spreads get to $30 or more—a more traditional bush-to-shred spread."

However, most participants said that any spike in demand for prime grades will be met by sufficient supply, thereby negating much price impact.

Meanwhile, most Midwest sources contacted by AMM reported a steady scrap supply, with only some suggesting flows from industrial accounts and obsolete collections had dropped following two months of price declines.

A source at a large scrap company echoed the consensus view, saying that flows into yards have been reasonable but not "overwhelming."

A buyer for another Midwest steel producer said there was little concern about supply. "My remote vendors say supply is great. More locally, they’ve told me supply is okay and hasn’t fallen off despite the price decreases," he said. "Some dealers here think prime shouldn’t go down and claim that some mills are buying at sideways. I’m on the fence with this one. Industrial scrap generation is not tied to pricing so it should go down."

A third buyer said he had heard conflicting reports on the strength of scrap flows, "but regardless of whether they’re up or down, they seem to be adequate to cover demand. Dealers so far seem content to keep their scrap moving. Neither dealers nor consumers seem inclined to build inventories. Steel markets continue to feel weak and uncertain as steel pricing continues to drift down on most products."

Although some suppliers pointed to recent price increase announcements by a number of steel sheet producers as a positive for scrap prices in June (, May 23), others were more skeptical.

"Regarding the price increases, we don’t really believe it," said a scrap buyer for a fourth steel producer. The buyer said he had received offers at down $15 per ton in the Midwest and responded with bids at down $17 to $18.

"It appears we are going into another soft market in June for the third month in a row," another consumer said. "With finished goods struggling to find a home and margins squeezed, the metalworking industry continues to flounder, as witnessed by quarterly earnings by steel mills. The export market would be the only thing to hold the market up, but that is pretty much nonexistent at this time."

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