On June 16, market sources informed SteelOrbis that US domestic scrap prices heading into July were expected to trend soft-sideways. At that time, market participants cited the following key factors: slower summer seasonality; tight inventory management by mills; an expectation of price increases lacking full market adoption; and a lackluster export market. A week later, scrap dealers now indicate a slightly more robust market outlook. Obsolete grades (HMS I, P&S, shredded) are expected to trend sideways while the sentiment on prime grades (busheling, #1 bundles) is mixed.
In the US market, steel buyers report that mills are less willing to negotiate prices, relative to earlier in the month. Furthermore, potential signs of a price increase include an increase in lead times for flats; reduced production at some mills; expectations of demand increases for domestic steel products in Q3; along with relatively lean inventory data for service centers. In addition, buyers may already be shifting purchases to domestic producers as a positive Section 232 ruling may restrict steel imports into the US.
An increase in the price of steel products is expected to motivate scrap dealers to remain firm or even increase their prices. On the other hand, some scrap dealers are expressing expectations that steel prices may remain steady from present levels through July as the market awaits further information, and buyers may push back on mill price increases by only making interim low volume purchase of finished products to maintain inventories. In this scenario, scrap sellers are still expected to limit discounts in scrap deals compared to the June settled prices.
On the export front, current offers are lending support to US domestic scrap prices. Turkish import prices have increased slightly from the Baltics giving some scrap dealers expectations of a possible ex-US deal at $280-290/mt CFR Turkey in late June or early July. Additionally, several large buys by Bangladesh and India have been heard on the US West coast along with higher Japanese H2 scrap offers in the East Asian market that are lifting prices for US origin scrap to destinations such as Taiwan.
However, several dealers expressed concern about the sustainability of the wide premium between shredded and prime grades. A correction that could reduce prices on prime grades is expected by some dealers in the summer, but possibly not until August. One US dealer noted that several mills in his area are showing price insensitivity to prime grade scrap prices as their value added production items have high margins and prefer a safe and constant steel mix. Last month, mills were willing to maintain high pricing on prime grades as the mechanism to ensure successful scrap deliveries through the month. One dealer noted, “The strength of prime grades pricing may be sustainable until the August scrap cycle. July demand will be telling.”