Throughout October, sentiment as to how November scrap prices would trend endured a marked evolution, which started with an expectation of down $10/gt (or, perhaps, down by as much as $20/gt), to sideways, to sideways if not slightly up. Today, sources note, there’s increased optimism that “prices will, at the very least, remain stable.”
“The finished steel market still seems to have some legs to it,” a source noted, pointing out that as of late last week, mills were operating at close to 70% cap rates. “Mills’ [scrap] inventories are low, import volumes are down, and for once, supply and demand seem to be in balance.”
A second source agreed. “I wouldn’t exactly describe the market as being robust, but the fundamentals for sideways scrap pricing are there, and in some places, I think we’ll see some small pockets of transactions that take place at up $5-$10/gt,” he added. “The mills are adding capacity and they need scrap. When you take into account that November and December aren’t exactly scrap generating months, this is good news for scrap yards.”
And while SteelOrbis had largely suspected that scrap prices would start trending downward in the last two months of the year, in the absence of cracks in finished steel pricing, our prediction has since been revised.
In years past, swift rallies on finished steel prices (in which spot market prices jump notably in a relatively short period of time), have often culminated with an equally steep correction-- and these corrections have tended to emerge within 2-3 months of the start of an uptrend. Today, however, despite being 2-months out from the start of flat rolled steel mills’ series of price increase announcements, hot rolled steel pricing remains surprisingly strong. As such, the scrap market not only lacks downward pressure, it’s likely to enjoy sideways, if not strong sideways pricing next month due to four key factors: cooler weather, reduced inflows, strong finished steel prices, and mills’ continued need for scrap.
“What we’ve been seeing is a trend that supports sideways, if not slightly up pricing into November, but with the way 2020 has been going, who knows how this is going to pan out,” a source concluded. “I’m just curious to see what happens with the markets the day after the election. Four years ago, when Trump won, it was like a switch flipped, and there was a lot of buzz and optimism in scrap and in the steel industry. Some people like him, some people don’t, but if Trump wins again, there are a lot of people who think that will be good news for the market.”