Will US scrap prices start to correct in November?

The November buy cycle is still 2 weeks out, but happenings within the market seem to indicate that the price trend is pointing downward. Although the most commonly held belief is that prices are likely to correct by $10/gt, a minority of those surveyed think that down $20/gt is possible.

“I think the market is imbalanced and that prices could go down $10/gt ($10/mt), but I don’t think prices are going to go down more than that,” a source said. “If the mills want to maintain their revenue and keep [finished steel] prices from sliding, reducing their input costs too much isn’t going to help them on that.”

Another source agreed that down $10/gt is likely, noting that US East coast exporters have lowered their dock prices by $10/gt ($10/mt) in the past seven days.  “A lot of us are keeping close tabs on the export market and what the docks are doing,” he said.

And while some have said they think that scrap flows will begin to dry up if prices start to soften “too much”, what’s notable is that current pricing is up substantially year-over year.

For example, in the Ohio Valley, October HMS I prices are up by approximately $50/gt ($51/mt) year-over-year, whereas busheling prices are up by $55/gt ($56/mt). On the East coast, October HMS I prices are up $60/gt ($61/mt) year-over-year, while busheling prices are up by $40/gt ($40/mt) since the same reporting period in 2019.

As such, it could be argued that domestic scrap prices have room to correct. Also of note is that a growing number of market players feel that domestic flat rolled steel pricing is artificially high, a trend which is largely linked to the widespread restocking that took place at the end of August, when US flats prices had bottomed. Should flat rolled steel prices begin to retreat (as some believe could start to happen as soon as the end of this month), that could also place downward price pressure on the domestic scrap market.

“Taking all of that into account, I agree that scrap prices will come down in November,” a third source added.

Yet despite signs that indicate November scrap pricing is poised to soften, others have an alternate view. “I am a bit more optimistic, as I think winter stocking [of scrap], strong [finished steel] sales books through the end of the year, and slower [scrap inflow] in the winter will help keep prices steady.  I am hoping we are sideways through the end of the year. There is lots of capacity coming online and as long as they can get sales, the mills should be heading for 70% utilization," a source said.

Current and late-year 2019 scrap price ranges are listed in the charts below.