US domestic scrap prices have jumped substantially in the past three months, and many sources close to SteelOrbis are starting to wonder if prices are now poised for a correction.
“The market is already off by about $10/gt for shredded scrap since the beginning of the month. Prices got pushed too high, and people who held back, and didn’t sell until the early part this week, sold down from levels heard last week,” a source said. “Some of the mills were offered more scrap than they could buy, so I think we could see a correction in February. Flow will be more than enough to meet demand, and although I don’t see prices collapsing, I think the market could correct. Down $30/gt seems plausible.”
Others agreed, although they offered alternate opinions as to how much prices would come down.
“Would I be surprised if the market came down next month? No,” another source said. “I think down $20 could temper things. Shredders are getting their fill of scrap, but I haven’t heard of anyone reducing their peddler prices just yet. We’re also seeing some tightness for cut grades.”
A Chicago-based source said he believes that there is a lot of desire for calmness within the market.
“Maybe we’ll have a nice, level off in pricing in February, so the mills and the yards can assess where they’re at. I’m also hearing there’s plenty of flow into the shredders, but I’m also hearing that there’s tightness for P&S and busheling, and the people I talk to think that P&S and busheling could trend up in February. As far as prices coming down, I just don’t see it. Especially when you see what’s been going on with HRC prices.”
Current HRC prices are being heard in the range of $51-$53 cwt. ($1,124-$1,168/mt or $1,020-$1,060/nt), FOB mill, which reflects a nearly $30 cwt. ($661/mt or $600/nt) jump from pricing in August 2020. Consequently, others have said that since it appears that that mills are “printing their own money" based on the margins they’re making on finished steel sales, the idea that they’d want to take scrap pricing down is laughable.
"People are saying the market has peaked, and that may be true, for now, but that doesn't mean that mills will be able to buy down next month," said a source in the Southeast. "If they try to take prices down in February, they may have to raise their prices again in March. If anything, I see things leveling off for a bit, and then depending on what the economy does, maybe go back up again."
Another market source said he's heard concern that the US is dealing with a “2008-style run-away market.”
“Prices started inching up in late-2007, but in early 2008, prices took off,” a source added for context. “We kept seeing increases $50-$60/gt, which at that point, people had never seen before. Busheling got up to $900/gt a ton, and specialty busheling was selling for more than $1,000/gt. Shredded was selling for $600/gt, P&S and cut grades were in the range of $800-$850/gt. Prices went up again in September, but then there was a $100/gt drop, then another, then another. It dropped at least $300/gt in the first half of 2009.”
For now, source say they’re still sticking to the basics and they’re holding on for the ride. They’re also taking note of export cargo sales prices. Although the most recent cargo to Turkey was sold at $481/mt CFR, SteelOrbis has reported that a global increase in scrap supply means that Turkish mills have started to anticipate a correction in scrap pricing. Some SteelOrbis sources have already noted that East coast export docks are planning on lowering their dock prices.
“My opinion is that no one knows what the hell is going on,” a final source said. “Everything that’s going to happen in February is all based upon demand. Based on what happened with prices this month, I assume there’s a great flow of scrap going right now. If the mills are over-inventoried, they may look for some sort of adjustment. We also don’t know how far export will go down, and for now, I don’t have a clear picture of the market. I agree there’s going to be a correction, but in my opinion the market isn’t weak. Prices will correct because the mills panicked in January and took prices up too high.”