NEW YORK Strengthening steel mill order books, finished steel prices and ferrous scrap export prices, combined with tighter scrap supply and transportation issues, have boosted market sentiment for domestic scrap prices in September.
Market participants polled by AMM in an informal survey were more bullish on southern markets, while Midwest market participants exercised more caution when speculating about price trends for next month. Nonetheless, two-thirds of survey respondents in the Midwest said they expect prices to increase in September, while one-third expect prices to remain unchanged.
Of those in the Midwest anticipating an uptick in prices, most said that prices could increase by up to $10 per gross ton while 11 percent felt tags could increase by as much as $20 per ton.
Nearly 86 percent of the survey respondents in the South and Southeast expect prices to increase in September, with an even split between those anticipating increases of up to $10 per ton and those pegging increases at between $10 and $20. Only 14 percent of those polled in the South and Southeast said they expect prices to remain unchanged.
"Longer lead times and steel prices will put pressure on scrap prices, especially in the South, where it is rumored (that) mills inventories are low," one consumer source said.
Midwest suppliers said they expect mill demand for scrap to increase in September, when some mills will return to normal production runs from reduced operating schedules this month and many mills likely will start building inventories in preparation for the winter, when scrap flows slow.
Difficulties in importing primary scrap substitutes such as pig iron and hot-briquetted iron (HBI) due to geopolitical events will result in increased demand for primary scrap, according to suppliers that are bullish on the market.
"Several scrap-substitute plants running poorly will need to buy additional prime grades. While shred supply is ample for demand, prime grades demand will escalate pricing and drag other grades along with it," one supplier said.
With favorable rulings on dumping cases, mills have raised steel prices even with scrap prices falling or moving sideways, according to a second supplier.
"When steel prices go up, service centers are stimulated to increase their buys, thus spiraling the demand for steel higher. Accordingly, I dont see any downside to the September market, and I expect the market to move up somewhat," a third supplier said. "As prices move up, I think the spread between prime and shredded will shrink and the spread between heavy melt steel scrap and shredded will grow."
Logistics continue to be problematic due to a tight supply of rail cars and trucks, with many participants expecting barge shipments to be impacted with upcoming grain shipments. "September could get interesting if dealers read the tea leaves," a fourth supplier said. Other sources said scrap prices also could rise due to higher freight costs.
One supplier in Chicago said the shredded scrap overhanging the market the past four months "is practically gone."
A recent uptick in bulk exports also could impact domestic prices as more shredded scrap leaves U.S. shores and reduces domestic availability, others said.
"The big export guys are now trying to buy shredded from producers that have been going inland. And, of course, they are now putting shredded on vessels rather than loading cars for the domestic mills. One large exporter told me that they were having trouble filling current contracts and had little to offer," a Mid-Atlantic supplier said.
Those expecting prices to remain unchanged in September said that nothing significant has occurred to shift the current balance in supply and demand of scrapespecially primary scrap, which continues to be well-supplied by strong auto production.
Others disagreed, however.
"Theres not a shortage by any means, but the mills will be a little more aggressive in September, and the scrap dealers can expect a few more bucks ... especially from the mills who got cute and dropped the price last month. Dealers will certainly get that back," one Midwest dealer said.
"Its hard not to see scrap markets rise $10 to $20 (per ton) in September. Operating rates are excellent. Mills are pushing back outages. Steel margins per ton are huge. Export continues to rise and there are many mills hunting and buying scrap," another Midwest dealer said. "The third and fourth quarters feel firm. Many in the industry are bullish on steel and scrap; they should be. Mills are printing money; getting their price increases; operating rates are excellent; flat-rolled guys have order books loaded through November ... this market is bulletproof today. It would take an extraordinary geopolitical act to shake this market. Its all good in our industry today."
But another market participant said he had yet to receive any news "that would suggest a significant increase in new steel sales that would cause more urgency in locking up scrap supplies."