Global Demand to Drive Domestic Scrap Prices

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If some of our most recent calculations and analysis are any indication, the scrap metal markets are increasingly a bellwether source of future steel production, demand and price forecasting intelligence. The ferrous scrap market, on a measurable upswing of late, is rife with indicators on future overall steel prices, while the nonferrous market shows just as much activity.

In a Nov. 15 report, ISRI noted that overall, metals markets began on a “less than sure footing in the wake of QE2 and the notably underwhelming results of the G20 summit in Seoul, citing mostly “global macro growth concerns.

Indeed, this is evident in the nonferrous slate of LME activity, according to ISRI’s Monday report: every single metal’s three-month ask price began down Monday from last Friday, including aluminum contracts, nickel and copper. Aluminum alloy and nickel were the only metals to close above their weekly averages on Nov. 12, with NASAAC’s price showing a 3.3 percent drop to start the week.

Source: Reuters Metals Insider, Nov. 15

Speaking in response to the copper price in a Reuters report, David Thurtell, an analyst at Citigroup, said the “sell-off is continuing from last week, with jitters remaining over Chinese production and Ireland.

Turning to the ferrous scrap side: we’re looking to see steel prices rebound, albeit slowly, at the end of the quarter. Since the U.S.-based scrap recycling market accounts for 40 percent of the world’s raw materials needs (according to ISRI’s industry facts on their Web site), that should help keep U.S. scrap steel exports up. However, the dollar has been strengthening against the euro in the past few days, and that could certainly lead to some major week-to-week volatility in the near- to medium term.

ISRI also foresees a price rebound, but in another recent report, states that although ferrous prices are firming up, “the increases we’re seeing for November do not quite match the declines that we saw in October. To back it up, the report quotes: “The latest Scrap Price Bulletin, for instance, has its No.1 HMS composite price  @ $336.17/gross ton, up $18.34/ton for a month ago (the October decline was $32/ton.) WSD’s latest “SteelBenchmarker has its No.1 HMS price @ $318/ton with shredded figured @ $348/ton, and prompt material (No.1 bushelings) @ $385/ton.

The price rises in the domestic market should continue, as supported by recent numbers in other reports. In one index, for example, reference prices for HRC, CRC and rebar in U.S. mills all rose between Nov. 8-14, while the same categories saw drops or no change in Northern Europe, Southern Europe and Turkey.

Overall, however, ferrous and nonferrous scrap prices should continue to see a gradual increase, as global steel (and therefore scrap) demand remains strong in China, India and Turkey primarily global, rather than domestic, demand will drive U.S. exports. Last week’s ISRI Friday Report stated that “several nonferrous metals are way overbought, but general consensus doesn’t see now as the time to go short; we are inclined to agree.

–Taras Berezowsky

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