Ferrous scrap prices expected to ease in February

27. JAN 2011 by AMM.

Some ferrous scrap brokers are talking the market down about $20 to $25 per ton for February, but others are urging their mill customers to go sideways in their pricing next month.

The unusually harsh winter weather—near-weekly snowstorms in the Northeast, Mid-Atlantic states and the Midwest—have aroused concerns among mill buyers and their brokers, one Chicago-based trader said.
"Most mills are still owed scrap from this month—some as much as 40 percent of the tonnage they bought. If they cancel their existing orders in anticipation of lower prices in February, they may not get any scrap for several weeks," he said.
Many mills typically cancel unfilled orders at the end of the month if they expect prices to be lower, believing they will be able to buy the same scrap at lower prices. With scrap still owed to some mils and the flow into scrapyards pretty slow, the Chicago trader said, the mills that don't cancel their January orders are likely get their old orders for scrap filled first.
A Detroit-area broker described the market as "very quiet" and said he was unsure what direction prices would take this month. "We hear some of the major brokers are talking it down about $15 or $20 a ton, and I'm sure some of the mills would like to see the price go down after the $50 or $60 (-per-ton) increase they saw this month," he said.
Still, not all of the scrap ordered by some mills has been shipped on time, he said, and the flow into scrapyards is slow because of the weather.
While some foresee a sideways market in February, more believe prices will drop by at least $20 to $25 per ton, although many mills are reporting that their order books are stronger and they will be melting more scrap.
One key Midwest mill has already begun to put out feelers for scrap at prices that are down between $20 and $30 per ton, several industry sources said, although none was able to confirm any sales at those levels.
"The mills bought a lot of scrap last month, so I don't think they have any inventory problems," a northern Ohio trader said. "I don't see it falling out of bed in February, but I think prices will be off by a few bucks a ton."
Much of the material he bought for mills this month has been shipped or is on schedule to be shipped. The only problem, he said, is getting some mills to unload rail cars faster and return them to scrapyards for reloading. Another problem, he said, may be the logjam of cars at East Coast export yards, which were pushing for scrap late last month in part to fill the orders they had already taken from steelmakers in Turkey and elsewhere.
There have been few new orders for U.S. export yards in recent weeks, though. Instead, one East Coast exporter said, Turkish mills have been booking more business with western European suppliers.
Even with domestic steel mills enjoying brisk demand and fat order books, several scrap processors said they are bracing for a sideways to downward move in February's first round of buying.
In the Midwest, players are not as bullish as in recent months, saying that winter weather choking off supply and limited availability of rail cars may be the primary drivers that are keeping prices from retreating more than a few dollars.
A Midwest mill buyer said he expects to run strong in February, but indications are he will not be paying higher prices for scrap. "My sense of the market today is a soft sideways. There is a better chance of weakening rather than gaining strength. Some think that obsolete-type grades may be off about $5 a gross ton," he said.
"Prices will be down, although I think it will just be a dip," a second Midwest source said, noting that scrap collection efforts have been limited by record snowfalls.
But some players believe the pricing pause may be temporary and short-lived. "We are not anticipating any major price fluctuations either way, even though the mills are hoping to take them down," another Midwest source said. Also, "rail cars are in tight supply and yards are only getting 60 to 65 percent service rates. Everyone will likely owe significant tons of scrap, which should keep pricing steady to up slightly. After we blow through the tons that several dealers withheld in December and sold in the January market, there won't be much volume behind it."
On the East Coast, one scrap dealer is confused by the mixed messages he is receiving. The only flow underway is from salvage yards and scrapyards that held inventory in the last two months of 2010. "That's the only reason for a pick-up in flow, and it is short-lived in my opinion," he said.
Sources in all regions said the mills they supply have strong order books and that order entries continue at a steady pace. As a result they expect to ship similar tonnages in February as in January.
In the Southwest, players are expecting prices to be flat to down. "We are as busy as last month, but I do see the market as sideways," one source in the region said. Scrap flows in the area have been healthy, which prompted one Houston shredder to lower its buying price for feedstock by $25 a ton.
Mills are trying to talk the market down and may be able to haggle down a few dollars but will meet resistance if they get too greedy, a second Southwest scrap industry source said.