NEW YORK Ferrous scrap prices for prime grades in the Midwest are likely to trade sideways in August, with obsolete grades and shred expected to come under a little pressure, according to early market speculation.
Most market sources suggested that scrap prices on all grades will stay mostly unchanged from July levels, while only some sources speculated that shred and cut grades could trade about $5 to $10 per gross ton under July prices.
A few sources said shred could lose some ground, given the volume on offer after Julys buying programs concluded, but one Chicago-area dealer said he was confident the market would trend sideways after concluding an early sale for August to an area mill at prices unchanged from July.
Other large suppliers and consumers agreed.
"I see it sideways for August. I dont see a reason for too much change," a source at one large supplier said.
A few mill buyers agreed. "I am expecting a sideways market at this point. Supply and demand seem to be in relative balance," said one buyer, while a second said he expects only prime grades to trade flat.
"The Chicago market looks flat for prime (and) flat to down slightly for shred. The Cleveland market looks down $5 to $10 on prime (and) down the same on shred. (It appears) down because some big consumers will hopefully get their inventories under control," the second mill buyer said.
Some suppliers said they expect demand from flat-rolled producers to be similar to the strong demand recorded in July, with demand from long product and plate manufacturers expected to be weaker.
Margins are good on long products, but lower production rates could result in layoffs at some long product mills running at under 70 percent of capacity with the exception of specialty bar producers, a second supplier source said. "Six mills in the U.S. are still buying or trying to buy today at sideways. Two have paid up money for fast performance. This is taking 10 percent of August scrap off the market."
The mills are not necessarily buying scrap for August consumption, but because it is possible they are running better-than-planned production schedules or did not buy enough scrap earlier in July, he said. "But it has (the) same effect on (the) market because mills are pushing for dealers to sell and ship scrap on the 22nd of a month, which is unusual. It creates tightening," he said.
A third supplier source said prime grades were poised to trade sideways and not above July levels because any supply loss from stamping plant shutdowns would be offset by the strong flow dealers recorded in July.
One broker in the region said it appears that there is an overhang of shredded scrap in the market which could be a drag on the entire scrap market in August. "It appears primes remain somewhat in balance to tight while frag (shred) and cuts appear to be in plentiful supply. Dealers held scrap in late May and early June waiting for the rally and they got it in July. A lot of scrap was sold and is shipping. I am not convinced all of that scrap will again be available come August, however," he said.
Although flat-rolled producers are still running strong, some market participants are concerned that imports could adversely impact the market later this quarter.
"Flat-rolled producers have been successful with price increases. However, we are concerned with flat-rolled sales being challenged by Asian imports. Higher U.S. prices are very lucrative to them, especially if our currency remains strong," a fourth supplier source said.
A few dealers said that any talk of weaker shred or cut grade prices could be offset by an improving export market.
"I feel no reason for any downward movement, given some export action, restricted supply and stable demand. Ive heard some dealers positioning for an up market, but Im skeptical that will happen until September or October," a fifth seller said.
Meanwhile, the southern market could weaken in August as production disruptions in Mexico and an outage at one domestic mill will improve supply, a mill buyer in the South said.