It is acknowledged that the planet is getting warmer, whether it is a cyclical shift, or something more sinister and man-made. Regardless of which, the lack of snow on the ground this year ensured that flows of obsolete scrap remained good as we moved through January. Coupled with the word that some dealers were content not to sell all their tons in January in the expectation that prices would be strong in February, it is clear where the recent downward pressure has arrived from. 

Moving into the last week of January (week commencing Jan 30 and ending Feb 5) the price fell off US$23/long ton for TSI’s weekly benchmark Midwest shredded index (del. mill), taking the price to US$446/l.ton. Reports also said that early birds made the best of the market, with one dealer describing it as a case of “the quick and the dead.” Since then, February prices fell further, before coming back a little.

One man’s meat is another man’s poison, so whilst the mills have been delighted by the auto/manufacturing pick-up since November (when hot rolled coil was at US$623/short ton), the good PMI news propelling demand (and prices) for sheet had a somewhat negative aspect for anyone dealing in industrial scrap. Stampers and blankers have been going at full tilt and making hay while the sun shined, but meanwhile the offcuts were building up to create something of an overhang of prime grades – doing the obsolete market no favours. Whilst the sheet market may have seen some of the steam come out of it (seeming to peak at US$748/short ton on Jan 9 and easing back to US$728/s.ton by Feb 13), mills will wish the tailwinds behind the Midwest’s industrial output to keep blowing.

The March outlook for scrap seems uncertain with low alternative iron prices potentially capping movement for industrial scrap (which is not ‘scarce,’ regardless). Obsolete export markets on both coasts have ticked up (Taiwan and India for containers, Turkey on the bulk side) – but will this be enough to bring Midwest frag prices back up, or will domestic demand have enough ‘fizz’ on its own (RG’s Warren furnace was temporarily idled recently for repair)? It’s hard to find market conviction any particular way at present.

So: what’s a scrap vendor to do? Arguably, processors exist to make a good return transforming inbound material into clean, low impurity scrap, ready for recycling, rather than taking positions in the market. Indeed, many have told us of a desire to be able to hedge to be able to “sleep at night as buy-week approaches.” Gate prices can be dialled up or down throughout the month, but whilst flow is being restricted or encouraged to support the price, it will only serve to encourage a volatile market. Efforts are afoot to provide a financial tool for the US scrap market as well and this may be the thing to allow purchasing to take place throughout the month (rather than in one slug) and calm see-sawing earnings at processors and yards. The TSI-based contract for Turkish scrap imports continues to trade and clear on LCH.Clearnet, and a domestic US scrap contract is likely to see liquidity build quickly, especially considering the installed base of US HRC hedgers.  

More about Tim Hard
Tim joined The Steel Index in 2009. As the Director of Steel & Scrap, he is responsible for TSI’s global development and promoting the benefits TSI can bring to play in price indexing and price risk management. Tim also set up TSI’s scrap price coverage and continues to expand the regions being tracked. Prior to this, Tim was a senior consultant in the strategy division of CRU International, an analysis company studying global mineral and metals markets. If you’d like to reach Tim, e-mail him with comments or questions at hard@thesteelindex.com.