SCRAP Summarization and outlook of last week (17-23 Jan. 2011)

Russian and Ukrainian exporters are among those few who are negotiating new contracts with Turkish steelmakers this week. While the key European and US suppliers of scrap prefer waiting until the lull in the Turkish market is over focusing on the domestic market, where the buyers are bidding at competitive levels amid seasonal shortage of supply, CIS scrap collectors are making every effort to export their material.

In particular, as quotations to Turkey and purchase prices at ports are moving in opposite directions, exporters of Rostovon-Don can offer their A3 scrap at $490-495/t C&F ($460-465/t FOB, excluding freight rates of about $31/t). However, while in the second week of January a number of Turkish mills were ready to accept these levels, currently they bid $480-485/t C&F ($450-455/t FOB) at the highest to Azov-Black Sea exporters, which can barely cover the suppliers expenses. Prices for scrap are going up at ports, while the exporters in need of attracting additional material to fulfill previously signed contracts compete with the local mills for the available material. Currently, export prices in St.-Petersburg are at $435-440/t FOB, against
$450-455/t FOB in early January, due to an increase in freight rates in January from $55/t to $65/t on the back of growing cost of fuel and lubricants.

Prices are also steadily growing at the Ukrainian ports. Offers of A3 scrap have added about $30/t from early January, reaching $364-370/t CPT now. Ukrainian traders can afford raising them by another $10-15/t, in spite of rapidly decreasing profitability. Although they will hardly reach the $500/t C&F Turkey level this month, some companies, who closed sales at $495/t C&F ($465/t FOB) at the end of the first half of January, are already close to it. Currently, traders are ready to sign contracts even at $485-490/t C&F ($460/t FOB).

In spite of a drop in quotations, most exporters expect Turkish mills to bid higher soon, as US and European traders will hardly reduce their offers and the necessity to attract material to sustain production in February will force the steelmakers to sign contracts at the level of $500/t C&F and above.

Turkish scrap market has been predictably calm this week and no deals have been made in the segment of large-scale sales for two weeks. Taking into account nominal prices for US scrap, which stay at the following levels: HMS 1&2 (80:20) at $515/t C&F, shredded scrap $520/t C&F and P&S material $525/t C&F, US traders hope the situation will develop according to the second scheme.

EU traders, in turn, stick to a different policy while considering possible discounts. Their current nominal levels are based on offers of a Belgium company, which, after mills refused to accept already attractive prices for HMS 1&2 (70:30) $496/t C&F, shredded scrap $509/t C&F and P&S scrap $530/t C&F, pushed prices for HMS 1&2 down to $489/t C&F. At the same time, no deals at the new level have been made yet. Estimated prices for HMS 1&2 (80:20) from Europe are $505-510/t C&F, against $515t C&F a week ago, given the company's specific pricing policy and quality of scrap.

In particular, having failed to sell a mixed batch of HMS 1&2 (70:30), shredded scrap and P&S at $496/t, $509/t and $530/t C&F respectively, a company has decreased price for the lowest quality scrap to $489/t C&F. Export offers of HMS 1&2 (70:30) are at $465/t FOB excluding freight rates now, $15/t down from the January highs. In spite of the fact that other companies are not offering their material, market participants say scrap collectors are ready to reduce prices. Metal Expert estimates that in case buyers start showing demand, most of exporters will be content with the following levels: HMS 1&2 (80:20) $500-505/t C&F ($475-480/t FOB), shredded scrap $510-515/t C&F ($485-490/t FOB). They are $15/t lower than those
last week.

By the time buying activity recovers in Turkey, which most traders expect to happen in early February, offers of European scrap will decrease by another $10-15/t. Metal Expert estimates, new bookings of HMS 1&2 (80:20) to Turkey will be made starting at $490/t ($465/t FOB) C&F, with offers of shredded scrap and P&S being by $10/t and $20/t respectively higher.

In particular, prices for shredded scrap (E40), which steelmakers show the most demand for, have reached EUR 410-415/t ($549-555/t, EUR 1 = $1.33) CPT. As previously reported, last week quotations of E40
were at EUR 390-400/t ($504-516/t) CPT. Stronger euro, gaining 4 points in the foreign exchange market in a week, has contributed to an increase in US dollar-denominated prices to some extent.

Prices for scrap, imported from France and Germany, have also grown. Average quotations of the material from these countries have increased by EUR 10-15/t, reaching the following levels: shredded scrap (E40) EUR 395-400/t ($529-535/t) CPT, HMS 1&2 (80:20) (E3) EUR 375/t ($502/t) CPT.

Export prices in the Japanese steel scrap market have been moving up at slower pace recently. One of the South Korean importers has showed interest in buying a lot of HMS 2 from Japanese scrap collectors at JPY
39,000/t FOB ($474/t FOB, $1 = JPY 82.2), up JPY 500/t ($6/t) w-o-w. Another company, on the contrary, refused to pay more than JPY 38,000/t ($462/t) FOB. Thus, the average market price for Japanese HMS 2 is JPY 38,500/t ($468/t) FOB, which corresponds to the latest contract level of Hyundai Steel made earlier last week.

A lack of new contracts with Turkish consumers is keeping US scrap collectors from further increases. At the same time, steady consumer activity in the alternative sales markets amid limited supply keeps the quotations from falling. By now HMS 1&2 (80:20) has been changing hands in the US east coast ports at $475-480/t FOB, in line with weekago levels. Shredded scrap is quoted by $5/t higher. Prices for P&S have been static too $485-490/t FOB US east coast. HMS 1&2 (70:30), being in high export demand, is priced at $470-475/t FOB.Most US traders believe Turkish producers will resume scrap imports in the next two weeks, enabling export prices to climb higher. Constantly rising domestic prices are expected to support export ones. Currently, average market prices for
HMS 1 have set at $440-445/t delivered, up $5/t w-o-w. Quotations of HMS 2 have stayed unchanged $370-375/t delivered. Prices in the US east coast have stopped going up as well. Currently, HMS 1 is still offered at $430-435/t delivered, HMS 2 at $320-325/t delivered.