Home / Metal News / Mike Marley Shredded Power #34

Mike Marley Shredded Power #34

iconMar 3, 2016 09:02
Source:SMM
Ferrous scrap prices could rise sharply in some regions while remaining unchanged in others.

By Paul Ploumis (ScrapMonster Author)

March 02, 2016 07:04:00 PM

WSEM - World Steel Exchange Marketing - Mike Marley’s Shredded Power #34

March 1, 2016

Gains in flat-rolled output could push scrap prices up.

All but the fluff - Commentary

Ferrous scrap prices could rise sharply in some regions while remaining unchanged in others. The gains will hinge on two key drivers. First, there is increased demand for domestic sheet steel. The EAF-based flat-rolled mills are buying more scrap. Integrated mills–the other sheet steelmakers–don’t use as much scrap, although even those mills were querying dealers about scrap availability last week. Second, there is the uptick in the offshore scrap prices.

Most dealers are looking for price gains mainly in the U.S. Midwest and Northeast. The mills there have raised local prices by $10 per gross ton, though a few dealers have loftier hopes of $30 per ton hikes for some grades. Prices in outlying regions could also climb by that much. By relying more heavily on remote yards, some mills may have to pay higher freight costs, while trying to avoid a bidding war with rival mills closer to home. Such battles, particularly when they involve fixed supplies like busheling and bundles, drive prices higher without bringing out any additional scrap, said a Midwest broker.

In the South and Southeast, on the other hand, dealers are anticipating a sideways market or modest increases of about $5 per ton. Prices there are already as much as $20 per ton higher than what some northern mills paid their local scrap suppliers last month.

Signs that prices could be headed upward were apparent a week or more ago. First, after much of the buying was finished last month, some believed that prices could drop in March. But brokers and buyers for flat-rolled mills were still looking for more scrap. Instead of reaching out to distant dealers and offering them higher prices then, they tried to encourage their largest suppliers to add to their orders. A dealer that had sold, say, 10,000 tons of shredded scrap was told that he or she could ship another 1,000 tons or more and be paid the same price for those additional tons.

The buyers’ and brokers’ goals were to obtain more tonnage without raising price expectations. Astute brokers realize that there are few “quiet deals” these days, said a Chicago area trader, and they are trying to find other ways to buy more scrap without firing up the price furnace. Today, he said, word that a major mill has paid more money for scrap is likely to be known throughout the industry within hours, not days. “There are three forms of communications,” he added, “television, telephone and tell-a-scrap dealer with an I-phone.”

Second, brokers polled several suppliers in the past week to determine how much scrap would be available this month. They were not singling out specific grades like shredded scrap and busheling, said one dealer, but they were asking instead about overall tonnage. This market foreplay tipped off dealers that mills needed more melt material this month than last month. Ironically, it also stymied the efforts of rival brokers trying to make price-to-be-determined (TBD) deals. One dealer said he turned down several TBD offers last week and knew that other dealers had done likewise. TBDs undermined any chance of getting higher prices from mills that are short scrap, he said. Dealers often take these offers in weaker markets if they are worried that they won’t sell all of their scrap.

Third, some traders questioned whether the flat-rolled mills were able to fill their raw materials pipelines with enough alternatives. Supplies of direct-reduced iron (from both their own ironmaking facilities and offshore suppliers), imported pig iron, and imported scrap may not be readily available–especially not in the short one-month time frames in which the domestic ferrous scrap market operates. Pig iron cargoes often must be booked at least three months in advance. Even with the strength of the U.S. dollar and lower ocean freight rates, some domestic steelmakers failed to obtain all the raw materials they wanted, and even had to parcel out those cargoes among several of their mills.

Fourth, if flat-rolled demand is stronger, the EAF mills producing sheet products need more busheling. However, some rebar makers and structural steel mills have been substituting that industrial scrap for scarce and higher-priced shredded scrap. For the long products mills that are part of the same corporation, directions from the executive suite may resolve the issue. But keeping other intruders out of that part of the scrap patch might require a bigger price hike for busheling, possibly restoring its historic $15 per ton or higher price premium over shredded scrap. That could produce a $30-per-ton rise in busheling prices while the tags on shredded are only marked up by $10 per ton.

Last, noted another Midwest dealer, “it is still winter”. The likelihood of snow and colder temperatures remains a threat to the obsolete scrap supply and processing in regions like the Midwest and Middle Atlantic states, despite the mild 60-degree temperatures in some regions this week.

Lead times for some sheet steel products are longer and price spreads are wider.

One mill buyer said the order books for cold-rolled and coated sheet products have filled up while the hot-rolled coil orders are not enjoying as strong a rebound. The price spread between cold-rolled and hot-rolled coil has widened to as much as $200 per net ton, another indication of the strength of demand for these products. Cold-rolled is trading at about $580 per ton while hot-rolled is available at $380 per ton. Likewise, lead times on hot-rolled coils are averaging only three or four weeks while the delivery pace for cold-rolled steel coils is out to eight weeks for some mills.

Flat-rolled demand may be gaining because some steel users and warehouses are increasing their buying before the U.S. government announces the new duties on imported sheet products later this month. Also, another Midwest trader said flat-rolled mills are not the only steelmakers with bigger appetites for scrap. Some long products mills have larger melt programs this month as well. He said, if the flat-rolled mills scoop up all the busheling and bundles, then the long products makers may have no choice other than to raise prices for scarce supplies of shredded scrap and cut grades.

Traders said only one Midwest mill cancelled its unshipped orders from last month, yet another indication that most mills aren’t expecting lower scrap prices. Excess stocks led to that decision said a Chicago area dealer. That mill’s inventory ran low at year’s end, it had to restock in January and paid significantly higher prices for scrap bought from distant suppliers including several in Canada and as far east as New York.

Meanwhile, several dealers said that they are still behind in shipments to other mills. Late shipments to most mills involve obsolete grades like shredded scrap, heavy melt, and plate and structural scrap, i.e. materials that are in tight supply in the winter months. But some dealers said that they are also having problems finding enough machine shop turnings to fill their orders from last month. One dealer attributes the shortfalls to the drop in production of pipe and tubing for domestic oil and gas drillers.

Dealers in the South are not as highly charged as their rivals in the northern markets, said a Birmingham-based broker. Same yards have seen a steady rise in the intake of scrap in the past month. Their buying prices have not risen, yet several have reported that the flows of junk cars and other shreddables have increased. Another dealer with multiple feeder yards in the region said that he has seen the volume of material coming through the gates rise to levels that he has not seen in several months. Auto wreckers may have finally realized that they aren’t likely to get $300 per ton for cars, he said.

Turkish steelmakers raise their scrap prices and reach out to U.S. suppliers.

The U.S. is not the only region seeing a warming price trend as winter enters its final month in the northern hemisphere. Steelmakers in Turkey bought a few cargoes and paid sharply higher prices for their scrap.

They purchased two cargoes of about 35,000 tonnes apiece from Baltic scrap exporters last week and paid as much as $191 per tonne delivered for the 80/20 heavy melt portions of those shipments. This week, another Turkish mill bought a lone cargo from a U.S. exporter and paid $195 per tonne for the heavy melt. That price is up by about $20 per tonne from the sales by U.S. exporters three weeks ago.

Deducting the ocean freight costs of about $13 per tonne and stevedoring expenses of about $15 per tonne, lowers the price on the docks to about $167 for heavy melt and $172 per tonne for shredded. That deal is likely to raise the expectations of dealers along the coast as well as those inland. The docks have been offering local suppliers as little as $115 per ton for heavy melt. These price rises are also likely to raise the ante for U.S. mills along the U.S. Southeast Coast who have been actively buying shredded scrap from East Coast export yards and other coastal shredders.

U.S. Shredded Scrap Thermometer: Flat-rolled heats up.

EAF-based sheet steelmakers enjoy cost advantages over their integrated competitors, but they still have the challenge of finding more scrap when demand begins to rise. Even the mills that own scrap yards have no assurance that enough busheling and bundles will be available to meet their needs. Supply of that scrap is fixed by the pace of manufacturing. Stampers can’t be persuaded to punch out extra hoods and fenders simply to generate more sheet steel scrap for a few steel mills. These mills face other challenges as well in this now-strengthening market. These include:

The upside-down prices of shredded versus busheling has encouraged some long products mills to substitute busheling for the higher-prices and scarce supplies of shredded. Flat-rolled mills may be forced to raise their busheling prices even higher if they hope to end that diversion of this key raw material.

Finding adequate supplies of obsolete scrap like shredded and plate and structural remains a challenge at this time of the year when those grades are typically in short supply. Colder temperatures discourage collecting that material and also hinder processing and scrap preparation work in dealers’ yards.

Some EAF steelmakers along the East and Gulf Coast and the Eastern Seaboard have increased their reliance on U.S. exporters and coastal shredders to provide them with additional supplies. Offshore mills have raised their prices this week and thus have set the price bar higher for U.S. mills.

The scrap supply squeeze could be a short term phenomenon.

Warmer weather and the price increases this month are two “wild cards” that could increase the intake at dealers’ yards later this month and in April.

Several bar mills and the pipe and tubing makers are still in a deep recession and have little need for more scrap. Indeed, on large EAF steelmaker in the Midwest has excess supplies of shredded on the ground and plans to sell much of that scrap to other steelmakers this month.

NASDAQ OMX Commodities (Stockholm) plans to begin trading in the Midwest US shredded scrap index futures on Tuesday March 29, 2016. The contract will trade in 20-gross ton units with the prices settled on the 11th day of each month against the TSI Midwest US Shredded Scrap Index. For additional information about shredded futures trading, contact John Conheeney at WSEM. His phone number is 201-503-0922 and his email is jconheeney@wsemgroup.com .

Note: Each issue, Mike Marley gives his opinion on the one-month steel scrap price outlook. He explains the key reasons for his view and highlights the “wild cards” that might cause him to be wrong.

 


 


Ferrous scrap prices

For queries, please contact Michael Jiang at michaeljiang@smm.cn

For more information on how to access our research reports, please email service.en@smm.cn

Related news

SMM Events & Webinars

All