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Scrap prices poised for another weak month

Keywords: Tags  scrap, ferrous scrap, scrap prices, steel mills, Sean Davidson

NEW YORK — Domestic ferrous scrap prices are expected to trend lower in March as lackluster export volumes and anticipated demand continue to tilt supply and demand fundamentals toward consumers.

Early speculation from market participants points to a market that could be down anywhere between $10 and $30 per gross ton for all scrap grades, with several sources speculating that the declines could land in the middle of that range at around down $20.

Midwest dealers, battered by winter storms that have resulted in weak collections of obsolete scrap, said they hoped March price movements would trend sideways to down $10 per ton since they need price support to encourage peddlers to gather and bring in better volumes.

Many claimed that Midwest steel mills didn’t receive all the scrap they booked for February, mainly due to logistical issues that delayed the supply of rail cars.

However, some mill buyers in the region reported reasonable receipts of scrap this month, and said that with suppliers still offering scrap they anticipate obsolete and shredded scrap prices will soften by at least $20 per ton in March, with prime grades likely to drop a bit further amid better supply.

A mill buyer in the Detroit area said large demolition jobs have resulted in a sufficient supply of plate and structural scrap in the region, while heavy melt supply was moderately impacted by weather this month.

"Also driving weaker scrap demand is the weak export (market), and also some mills have not been running due to high demand for household usage (of natural gas), thus not consuming scrap they bought," the buyer said.

A second Midwest consumer source said that an internal poll of its largest suppliers showed they anticipate a $20-per-ton drop on average. "Improving weather ahead, mills running at 70- to 75-percent utilization rates, erratic export business, and mills needing to improve their margins were factors mentioned for the drop in scrap prices," he said. "Too much offshore material is coming in at $100 to $150 (per ton) below domestic mills’ finished goods pricing, which will force mills to drop their sales prices, which will in turn put pressure on scrap pricing."

However, several dealers said they would fight mill efforts to lower prices by $20 per ton in March.

"I do not think that mills will get 100 percent of what they ordered with regard to obsolete grades (in February). I also think that many mills will not cancel orders," one dealer said. "So how does that translate into down $20?

"If the mills take it down $10, I think they will book all they need. If they go down $20, I think many dealers will sell only what they feel they need to for March. No one will have any inventory left on the ground in our area at the close of business this Friday," he said, echoing sentiment expressed by many dealers. Some of the dealers said they would end up shipping only 60 to 70 percent of their committed volumes for February.

But a few dealers felt that despite some suppliers reporting a weaker performance on orders this month, mills should secure their February requirement.

One broker said the supply lost in the Midwest and South from the weather continues to be supplemented from coastal regions, keeping the mills from running low on scrap inventories.

Despite the bearish sentiment on prices, a second dealer was wary on material availability. "If I am a mill buyer, I’m going to buy everything that is not nailed down in March. Even with better weather, which there is none on the horizon, it would be three to four weeks before flows really start to materialize. And flows will only materialize with a price increase," he said.

Most dealers said the market will receive its first real clue on price direction at the end of this week, when mills will need to decide whether to cancel pending February orders. Mills typically cancel orders at the end of the month if they anticipate a weaker market.

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