Ferrous scrap prices are expected to continue declining over the next couple of months in the face of excess supply as demand from steelmakers goes into a fourth quarter decline that is expected to reduce spot steel prices.
Shredded scrap, a key ingredient in electric-furnace steelmaking, slipped to an average $234/long ton this month from a cyclical peak of $290 in September. That's a 19% decline and a 16% drop to $222 in December wouldn't be out of line, according to analysts and market insiders.
The economy is recovering too slowly to help U.S. steel manufacturers maintain recent steelmaking rates in excess of 60%. So, Key Bank Capital Markets analyst Mark Parr writes to clients that ferrous scrap prices could continue to decline over the next couple of months, noting that export scrap pricing for November already has dropped $30/long ton. "Domestic mills and export buyers remain on the sidelines," the Cleveland analyst writes, "likely dampening the ability to substantially maintain or raise hot-rolled pricing realizations over the near term despite low supply chain inventories."
Analyst Eric Prouty at Canaccord Adams in Vancouver, British Columbia, says market research "indicates that scrap industry fundamentals are weakening due to falling ferrous scrap prices, a relatively quiet export market, the end of inventory re-stocking by domestic steel mills and weaker seasonal trends."
These factors also are being cited at the autumn conference of the Bureau of International Recycling in Amsterdam, where delegates were told by Blake Kelley, vice president for global trade at Sims Metal Management in New York that composite U.S. scrap prices could plummet another $29-$30/long ton in November after registering a $24-$25 drop in October.
A news report on AMM.com notes that the Sims executive suggests that steel scrap prices in the U.S. will continue to fall until demand and supply are again in balance. "This may not happen until late December buying, at earliest," Kelley says, "and more likely not until January."
