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Scrap oversupply sours Texas sentiment

Keywords: Tags  scrap, steel, ferrous scrap, shredded scrap, heavy melt, busheling, Texas market, Sean Davidson

NEW YORK — Excess scrap inventories at at least two major steel-producing plants in Texas and order cancellations by a third producer have market participants wondering if their region will be the country’s weakest in March trading.

Several market participants speculated that prices could drop $20 to $30 per gross ton due to an oversupply of scrap, with a much smaller percentage of participants contacted indicating that the declines won’t be so severe.

"(This) market has been overpriced for a while, with (one producer) leading the way. They are going to pull way back this month. I don’t think (one location) is going to buy anything. That, along with reduced demand from (two other producers) with more than enough scrap available for the export sales out of Houston at above the current export market, means another correction is due," one dealer source said.

"Spring flows are coming in March and April and that will impact the river market as more tons will become available, and there were tons left unsold in February already overhanging," he added.

Two steel mills had to delay shipments of scrap into their facilities starting in mid-February, sources said, noting that the mills were flooded by suppliers looking to take advantage of strong price offers by the mills for scrap during the month. As a result, many dealers feel that at least one of these mills won’t participate in the March market.

A third mill informed its suppliers Feb. 28 that it would cancel all February contracts for rail shipments, sources said. Meanwhile, contracts being fulfilled via truck will get one to three extra days to ship for most grades in March, depending on how many days their trucks were held up in February. Any orders after those delays were canceled.

The mill informed those supplying by truck that it would continue to put all orders of No. 1 bundles and No. 1.5 bundles on hold, while suppliers of No. 1 busheling were given one extra day. Suppliers of No. 1 heavy melt and plate and structural scrap were given two extra days, while suppliers of shredded scrap were given three extra days.

"I’m hearing anywhere from down $30 to sideways. Still seems to be plenty of scrap available at least in the South and Southwest, and mills have adequate inventory and think spring is around the corner. So it looks like a Mexican standoff. If enough dealers held scrap it might go sideways, otherwise if scrap is made available then it will probably go down," a second market participant said.

Some dealers said there was too much uncertainty in the market to speculate on movement.

"I just don’t know yet how the market is going to play out this month. If they drop $30 to $50 you will see almost everyone stop shipping at the same time or considerably slow down and just ship for cash flow reasons," a third source said.

Most sources expect mill buyers in Texas to enter the market with price bids between March 7 and March 10, with at least one dealer hoping buying patterns will change.

"Mills don’t come out with pricing until one of them breaks the silence, and then within minutes all of them are out. I think this is bad for business. It is no different than two gas stations side by side and one changes their price and the other changes very quickly. Interesting dealing in our world of free enterprise and free trade," he said.

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