PITTSBURGH Many metals recyclers are optimistic about the first quarter of 2014 as low inventories are expected to drive competition for material.
Demand for scrap metal should be stable in the first quarter, with most mills expected to be purchasing material. Mills typically reduce their inventory at year-end, forcing them back into the market at the start of the New Year.
"Mill demand will be steady to slightly stronger, and pricing in the quarter will be impacted by weather issues and already anemic flows into the yards," one southeastern scrap broker said. "Supply is most concerning and will affect pricing because volumes into the yard are so low. It should be a good quarter for all scrap dealers that can acquire a volume of material to sell."
Scrap suppliers are also facing lower than normal inventory levels, as strong pricing trends recently motivated them to sell rather than build inventories for January.
"The first quarter has been seasonally good for scrap processors in recent years. Tighter supplies and improved demand seem to be set to repeat themselves in 2014. We see demand improving this year and supplies are tighter than we have seen in a long time," according to one Pennsylvania processor.
"We are being told by mills that order books are solid and there are no signs of any letdown going forward. ... Inventories are low at both consumers and scrap dealer yards," one supplier said of all grades into the Detroit market.
"Competition on the buy side, especially for shredder feed, is tremendous, making it difficult for shredders to have any significant inventories to run their shredders to capacity. We will have very little inventory on all grades in January, and this is fairly representative of the entire industry," the Detroit supplier added.
One Detroit consumer expects winter weather, sluggish inflows of scrap, low inventories and relatively strong operating rates to persist in the first quarter.
The market is also poised for some strength due to recent movements, one Mississippi River source said.
"From March to October we had four down months, two sideways and one up month, so the current trend is long overdue. Margins have been a real problem in this business the last year and a half, and these upward moves are giving us a chance to approach profitability for a few months," he said.
Unknown variables that could potentially pressure supply further include exports, the economy and melt rates. Steel mills year-to-date average capacity utilization rate as of mid-December was 77.1 percent (amm.com, Dec. 17), and if 2014 is able to return to 80 percent or higher this will further tighten supplies.
Export activity hasnt been a driving factor, but its absence hasnt caused the market to implode. "Export has been slow, but sooner or later it will come into play and it normally does at this time of year with the Black Sea freezing," one Pittsburgh recycler said. "The economy is improving at a slow but steady pace, so demand continues to slowly improve."