US scrap prices still have room to rise

The US scrap market is following the worldwide upward trend, with prices increasing approximately $70 /long ton since the beginning of March. This huge price jump lead to an immediate price increase for long and flat rolled products by steel producers such as Nucor and Keystone. The domestic scrap market is very strong. Inventories are still low, due to the difficulty of collecting scrap during the winter time and the additional challenge of delivering the scrap to the mills. As a result, the current scrap supply cannot satisfy the strong domestic demand. However, the transportation problems are slowly disappearing with the arriving warm season, so the market could become oversupplied in the not so distant future. But for now, the momentum of the market is still up and some insiders predict the scrap prices still have room to go up, perhaps $10- $20 /long ton next month. On the other hand, some pessimists expect the prices to lose most of their gains in the two months after mid-May. In the meantime, steel producers are squeezed as they are not able to pass all the scrap cost increases to their customers. Since the scrap prices have been increasing steeply and steel consumers are not quite ready to digest the full price increases, steel producers have been lowering their base prices in order to soften the net price increases. This will eventually lower the scrap purchases, and steel makers will soon demand better prices from their scrap suppliers. Scrap prices have been climbing up since the beginning of the year, with an enormous price jump in March. Busheling scrap increased an average of $65 /long ton, and shredded scrap increased by an average of $70 /long ton, while HMS I and II went up at an average of $55 /long ton. Current Midwest busheling prices range from $365 - $375 /long ton, while shredded goes for $360 - $370 /long ton. HMS I now ranges from $305 - $315 /long ton, while HMS II ranges from $300 - $310 /long ton. The scrap export market continues to be much stronger than the domestic market. Export demand is good, while export inventory is weaker than domestic inventory. Turkey still imports the most tonnage of scrap from the US. Current FOB ship prices for HMS 1 range from $320 - $330 /gross ton. The pricing trend for the FOB ship prices will follow the domestic scrap prices. SteelOrbis is informed that a Turkish mill concluded a booking of a single cargo of scrap ex-US towards the end of the 11th week of the year. The cargo is composed of 23,000 mt of HMS I/II 80:20 scrap booked at $368/mt CIF Marmara, 7,000 mt of shredded scrap booked at $373/mt CIF Marmara and 3,000 mt of PNS booked at $378/mt CIF Marmara. Turkish scrap prices are now showing signs of slowing down, and there are reports that some Turkish mills this week concluded scrap purchases from Europe lower than the above numbers. This could be a temporary correction, or worse, it could be the peak of this current upward cycle. The general trend of the US export prices is expected to show in the upcoming weeks. The most recent USITC data available show that during the month of January, 2007, the top recipients of shredded scrap from the US were: Turkey at 111,000 mt, India at 47,000 mt, Mexico at 44,000 mt, and Japan at 41,000 mt. Korea, Italy and Greece were also importers of shredded scrap from the US in January. The top importers of HMS 1 grade scrap from the US in January, 2007, were: again Turkey at 128,000 mt, Korea at 57,000 mt, and Taiwan at 28,000 mt. Some other countries which imported HMS 1 grade scrap from the US in January include: Malaysia, China, Italy, Columbia and Canada. The total amount of ferrous scrap exports from the US in January totaled 833,000 mt, 126,000 mt more than the amount exported in December and an increase of 42.5 percent when compared to the figure of 584,000 mt for the corresponding figure of 2006.