Strong finished steel prices coupled with still-extended finished steel lead times are good news for domestic scrap sellers, as 100% of those surveyed are now confident that November prices will trend sideways.
“We no longer see any downside for November,” a source said, adding that mill buys are expected to be good and that supply and demand fundamentals, for export and domestic scrap, seem to have leveled.
Another scrap yard source agreed. “If we try to [take our paying prices down] that’s going to hurt inflow. On the other hand, if we start getting too aggressive with [what we're paying for scrap], our input costs are going to go up and that’s going to squeeze our margins,” the second source noted. “Mills’ operating rates are still inching up and we know that at least two of the mills we sell to aren’t carrying big inventories. For now, we’re seeing the market at neutral. We don’t see a downside, and for the current moment, we don’t see indicators that point to an upside. But again, all of this could change in a week.”
In terms of the finished steel markets, flat rolled prices, which have been trending upward by leaps and bounds since the end of August, have once again inched up week-over-week, albeit slightly. Activity out of the automotive sector is still robust, and mills’ finished steel lead times remain extended. On the longs side, rebar demand is still steady, allowing domestic rebar prices to be minimally influenced by scrap trends.
“If the mills got cute and tried to take scrap down this month, I think the [scrap] yards would revolt,” another source added. “The mills are making great margins and if they tried to take prices down, not only would this cause problems on the [scrap] supply side, they’d likely start to get some pushback on their finished steel prices.”
A final source concurred. “Finished steel inventories are still low, lead times remain extended and there’s no reason the mills can’t keep their input costs where they are. There’s currently no reason for them to try to take scrap prices down.”