Scrap suppliers enjoy mid-summer dream
After a nightmarish first half of the year in which
scrap prices seemed to be locked in a never-ending free fall, a July buying frenzy shook
scrap suppliers from their funk and offered a glimmer of hope for the rest of the year.
That said, however, last months surge in
scrap prices was nothing more than a simple market correction sparked by producers decisions to conclude purchases prior to the notoriously slow month of August.
Worries that raw material suppliers would try to cash in on the skyrocketing steel prices drove many producers last year to ensure that they had more than ample
scrap stockpiles to make it through the beginning of this year. This meant that
scrap purchases during the first quarter trickled off since most producers were already adequately covered. Then, when the expected market pickup never materialized at the end of the first quarter, many producers decided to cut back their
production. This allowed those producers to rely upon their
scrap stockpiles well into the second quarter.
The mills reluctance to purchase
scrap in the second quarter saw prices tumble 25 percent or more in the latter part of the quarter. HMS No1
scrap in European and Asian markets fell from $210/ton to $140 160/ton C&F. The US market was hit even harder as prices dove nearly 50 percent, from $250/ton to $125 135/ton on a delivered basis.
However, as July rolled around, many mills decided to take advantage of the pitifully low
scrap rates. The mills jumped on the opportunity to augment their stocks prior to the fall and winter seasons, when
freight rates jump. European mills were especially keen to secure their orders prior to the August holiday. The buying frenzy witnessed at the beginning of July drove prices upwards and into more familiar territory. European shipments of HMS No1
scrap to
Turkey, which had been
trading at $170 180/ton FOB prior to July, rose to $210/ton FOB by the second week of July. At the same time, Ukrainian shipments of A3 grade
scrap to
Turkey went from $150 170/ton C&F to $175 200/ton C&F.
The July buying spree was moderate enough that it did not set off alarm bells and cause mills to start snapping up
scrap out of fear like the previous year. Expect the late July prices to remain through August, as that month is known for its lack of activity.
Come September, the ball will be in the
scrap suppliers court. If they want to maintain the newly revived price levels, they will have to show some restraint so as not to flood the market. However, the urge to capitalize on the higher prices will be too much for some to resist, so it is only a matter of time before some traders break ranks and thus send
scrap prices downwards once again. So the question is: How long can they maintain their discipline?