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Cold weather, exports cloud Feb. scrap market

Keywords: Tags  scrap, ferrous scrap, heavy melt, HMS, shredded scrap, busheling, scrap prices, Sean Davidson

NEW YORK — Weather conditions and export demand over the next two weeks will dictate the direction of Midwest ferrous scrap prices in February, but neither has prevented a bearish sentiment from sneaking into market speculation.

Midwest dealers and brokers suggest that sufficient flows of prime grades like No. 1 busheling vs. anemic flows of obsolete material that is processed into heavy melt and shredded could repeat January trends, making prime scrap the weakest grade.

Scrap dealers surveyed informally by AMM speculate that prime scrap prices could trend sideways to down $30 per gross ton, with obsolete grades poised to perform a tad better. The consensus fell toward the median of that range.

Most market participants reported poor inbound and outbound scrap flows this month in Chicago and Indiana due to extreme cold weather, with mixed reports on inbound flows from players in other Midwest regions such as Detroit and St. Louis.

Repeated cold weather snaps have seriously impacted metals processing and logistics, sources said.

Some dealers reported up to a 60-percent reduction in torching and shearing activities due to the effect of low temperatures on worker safety and torching productivity, while shearing can cause equipment damage. Baling also slowed due to cold hydraulic oils, one dealer said.

Scrap shipments from Chicago to integrated mills around the region were affected by lake-effect snowstorms that closed down the interstate and secondary arteries, sources said. At least one local mill reportedly couldn’t receive scrap on at least five days in January.

Shipments via some railway lines have also suffered.

"Poor rail service is keeping lots of scrap from shipping and shipped cars are seeing much longer transit times. Also, steel mills seem to be taking longer to get them unloaded and turned back to the railroads for re-use," a second dealer said.

These delays could negate drops in scrap flowing into dealer yards, some suggested.

As a result, mill buyers and brokers are talking about scrap oversupply and pushing for price drops of at least $20 per ton, with prime scrap showing the greatest weakness, the second dealer added.

"Right now we’re hearing (prices) down $25 to $30 (per ton) across the board, but I don’t see it if this weather persists," a third source said. "The weather has been brutal. One mill we’re dealing with does not have feedstock on the ground and is pushing us to get them more material at current price levels."

Several dealers said they will have no choice but to resist lower prices.

"Nothing (is) coming in, so nothing to sell in February. In our world we can’t even think of dropping prices on the scale," a fourth source said.

Many feel the worst-case scenario for scrap suppliers is that buyers might push prices down to December levels, with the best-case scenario being a sideways market.

Opinion is torn on which factor will win the February battle for price influence: weather-related supply tightness that supports a strong market, or supply excess stemming from poor exports that could push prices down.

"A lot depends on export. ... If the East Coast sells inland, we’re screwed. If they export, we’re flat," a fifth source said.

The market is poised to drop even though "it really should not," a regional broker said.

"I have not heard anything directly from any mills yet on what their needs are for February, but at the same time have not heard (any talk) about reduced programs. To me, this would normally indicate at least a sideways market, but unfortunately with all the talk about things looking down due to lack of export, it appears it will drop even though it really should not. Exporters and some large dealers have been dropping their buying prices and scrap is still coming in," he said.

Meanwhile, others felt that a dearth of obsolete scrap due to persistent cold weather would prop up the market.

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