NEW YORK Philadelphia ferrous scrap dealers faced a new challenge this month after one of the three steel mills they supply changed its specifications for two key grades.
According to several sources, Evraz Inc. North Americas Claymont, Del., mill asked dealers to supply 3-foot plate and structural scrap (P&S) and 3-foot No. 1 heavy melt scrap (HMS) this month without any warning that such a change was imminent.
Dealers have historically sold the mill standard 5-foot specification product, and were only informed of the change late last week, sources said.
The sudden shift was triggered by Chicago-based Evraz NAs strategy to reduce its melt to a two-bucket charge from a three-bucket charge in order to lower operating costs, sources said.
Dealers struggled to secure sales and spot pricing for traditional 5-foot No. 1 HMS and P&S as a second mill halved its demand due to a planned outage, and a third mill tying most of its tons to contract pricing with little spot market presence.
Aside from Evraz NA, Chicago-based ArcelorMittal USA LLC operates two mills in Pennsylvania to complete the local destinations for scrap suppliers in the region. With Evraz NA moving to a different length on cut grades, the only ArcelorMittal mill in the spot market for cut grades was able to lower No. 1 heavy melt prices by $5 per gross ton to $315 as it sought very little scrap due to a near two-week outage. Dealers, meanwhile, aimed for a sideways to slightly stronger market, citing exports.
Additionally, dealers and Evraz NA are now debating a viable premium for the 3-foot grades that the mill is looking to secure, sources said. For the trades reported so far, it appears to have paid a $20 premium. But sources say the mill is looking to drive that down.
"Its hard to make 3-foot heavy melt. You need a stationary shear and you have to shorten the strokes on your shear. It takes more time to make. Mill buyers think it should be at a $10 premium to standard No. 1 HMS and dealers think it should be at $20 to $25," one source said.
Dealers arent likely to let the premium drop below $20 per ton, a second source said.
"Dealers will need at least a $20 differential to make it work for them. (One scrap company) supplied Evraz Claymont the 3-foot grades for a test run in July and they found some value in the change. I think they must be convinced there will be a savings going to the two-bucket charge," the second source said. "How much in savings that brings them I dont know yet. Hopefully, it will be more than the additional cost of the 3 foot. Dealers will let us know soon enough if $20 will cover it. They arent going to do it to just break even."
It is still unclear how many dealers are prepared to tweak operations to supply Evraz NA with its new requirements.
"Claymont believes they will have operational savings with fewer bucket charges, and that makes sense. But this will mean dealers having to make big adjustments in the next 60 days and it will be interesting to see which ones do," a third source said.
For ArcelorMittals mills in Steelton and Coatesville, Pa., however, Claymonts change could be a positive development, a fourth source said. "Claymonts drive for 3 foot will make more 5 foot available for the ArcelorMittal mills. It will be interesting to see what this does to prices."
Evraz NA did not comment.