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Detroit’s ferrous scrap market above forecast

Keywords: Tags  steel scrap, ferrous scrap, busheling, prime scrap, shred, Sean Davidson

NEW YORK — Supply-side fundamentals prevented ferrous scrap prices from falling drastically for a third consecutive month after mills in Detroit traded at unexpected price levels June 4.

Following recent trends, steel mills in Detroit were the first to begin trading for June, and once again buying took less than a day to complete for most of the market.

Participants said most Detroit-area mill buyers stepped into the market with bids before lunch, and most negotiations and trading were completed by mid-afternoon.

When the dust had settled, primary grades in Detroit traded sideways to May, while obsolete grades and shredded scrap were down by $10 per gross ton. Market sources previously speculated that prices would fall between $10 and $20 per ton in June, with prime grades expected to perform better than shred in an attempt to restore value-in-use price differentials.

Several sources said late June 4 that Chicago had started trading at similar levels.

June’s price movements were not as severe as originally expected due to growing concerns about scrap flow.

"I think the mills are listening to the dealers about low inventories, and down any more than $10 (per ton) could make matters worse. I buy into that theory," one buyer said. "My feeling is this is the bottom. I just don’t see any real uptick for the foreseeable future, however."

There were fears that prime grade prices would actually reverse momentum and trend upward this month, a second mill buyer said. "There isn’t a lot of prime in dealer yards. If you look at what it was for the past three to four months, there’s nothing now. I find it amazing we got sideways and not up pricing. Prime started leaving the area. What’s kept it from coming back up is that there are so many people that use a scrap optimizer that if they let the prime price run up too much, the optimizer will switch you back to shred."

A third mill buyer said there was little reason to send prime prices down when demand is expected to be quite strong for No. 1 busheling and No. 1 bundles this month.

Despite reports that auto plants are not planning any outages in June, which would improve prime scrap supply, the third mill buyer said it was pertinent to play in the now. "Prime scrap is the one item people are looking for. Why play with June even if they’re saying auto will run good and offer good supply? You take what you need now, and if the supply from auto is strong in June you can try fighting for that $10 in July," he said.

Buyers said there was very little resistance to their initial bids of down $10 on obsolete grades and flat pricing on prime grades. Some said shred was the easiest grade to book at down $10, with several sources saying there was still plenty of shred on offer even after mills had completed their buying.

According to different sources, mill demand for scrap in June appears to be about 10 percent higher than in May for obsolete grades and shred and relatively unchanged for prime grades.

However, at least one source felt demand was lower for prime grades. "I think there was a weakening in mill demand, because otherwise primes would not have traded sideways," he said. "Prices would have gone up."

Meanwhile, a large dealer/broker said demand is being pushed by stronger order books at electric-arc furnace flat-rolled steel producers, while a large scrap dealer called it a "supply-driven market."

Most suppliers said they were content with June’s pricing.

"Mills don’t have scrap, and dealers are sick of getting pushed down every month so suppliers have been selling shorter in the down markets," a second scrap dealer said.

A second dealer/broker said scrap supply and demand seems to be in balance in parts of Ohio, Michigan and Indiana, while there appears to be a surplus on the East Coast and in Canada, Florida and Texas.

A Midwest broker said he expects Detroit-area mills to pay sideways prices on any remaining volumes of obsolete scrap on the expectation that mills will chase more tons later.

Most buyers in the region, however, said they had either completed their buys or were extremely close to completing them at down $10 on obsolete grades.

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