In our last report a week ago, scrap market sources throughout the US believed that July scrap prices were poised for a downturn. And while initial predictions put the market at down $10-$20/gt for cuts and shred, and down $40-$50/gt for primes, “a lot has changed in the past seven days.”
For example, in conversations held over the past 72 hours, some sources have said they believe that cuts and shred could trend down by $20-$40/gt, whereas others think that down $50-$60/gt may be more likely. Similar, wide-spanning predictions have been heard for busheling scrap, with some thinking that primes will soften by $50/gt, and others stating they think that busheling could go down by $75-$100/gt if not more.
“Is the idea that the mills are going to try to take [HMS, P&S and shredded scrap] down again in July bonkers? Yes, yes it is,” a source said, adding that still-dropping peddler prices at the yards has “absolutely hurt inflows.”
A second source agreed. “There’s no scrap coming into the yard right now. In some areas, shredded scrap is a little bit tight, and in others, people are fighting over every pound of scrap they can get into their yards to shred,” he added. “At some point things are going to dry up.”
The rationale for a possible sharp downturn for cuts and shred in July is linked to several factors, such as still-softening scrap cargo prices into Turkey and an anticipated less-than-ideal July scrap buy from domestic flat rolled producers.
For example, on June 1, SteelOrbis reported that a cargo of HMS I/II 80:20 into Turkey was transacted at $439/mt CFR. As of yesterday, however, based on the most recent cargo sales, Turkish mills’ latest expectation has deteriorated to roughly $330/mt CFR.
“[Scrap cargo prices into Turkey] are coming down every single day,” another source said. “And we still have 7 more days before the start of July. Prices could be down by even more than they already are [by the time the next buy cycle starts].”
Additionally, still-falling sheet steel prices has many finished steel buyers “camped out on the sidelines,” as many are holding off on placing orders until they’re sure the market has bottomed.
BPI prices are also plummeting, which others believe are “sure to have an impact on busheling prices next month. In late May, an ex-Brazil BPI offer for August shipment was being offered to US buyers at $800-$850/mt FOB New Orleans. In contrast, the most recent purchase for Brazilian BPI into the US was heard at $600/mt, FOB New Orleans. Others point to the still-too-wide spread between busheling and shredded scrap, adding that "the spread is way too big and it absolutely has to narrow."
“No one is going to know how this thing shakes out until it happens,” a source said. “Do I think the market is going to be down? Yes. But that’s about as specific as I’m willing to get.”