The big three automakers have moved from public auctions to discrete swaps and return deals with the steel producers in return for new coil. They are fixing the prices via agreed upon formulas which presumably are more to the auto makers’ liking than the auction prices they were previously getting (and had expressed disappointment in).Ã‚Â
By itself, there is nothing wrong with the car makers’ approach. The problem for the market was these auctions had set the US market prices for new sheet scrap bundles ” auto bundles and without them the market is casting around for a replacement benchmark. Various publications including AMM, Platts and SBB all post prices based on what is reported to them by contacts in the market but as this Purchasing.comÃ‚Â articleÃ‚Â pointsÃ‚Â out, they vary by 10% from low to high and none of them can be said to set the benchmark.
To compound the woes of the scrap consumer, exports are at record levels up 10% year over year as scrap traders take advantage of the weak dollar to sell material to Taiwan, Turkey, Korea and other SE Asian markets. This has prompted talk of limiting scrap exports in the way that some other producers do such as Russia and the Ukraine but most observers think it will stand no better chance than the last attempt at controls in 2004/5. Temporarily restricting exports does release more material onto the domestic market and suppresses prices but eventually it dampens supply and harms consumers and producers alike.
So with the volatility of increased exports and the lack of a firm benchmark previously provided by the auto makers’, the market is a like a ship at sea without a compass. All we need now is the steel market to take a downturn and the scrap market could hit the rocks without warning.