US mill buyers have tried to get ahead of a stronger market in mid-December and have been active buyers in the last week. This drove shredded scrap up. The catalyst was the bottom of the international market and the return of Turkish interest. US East Coast export yards had low inventory (after sending it back to the Midwest for the last few months) and started buying on the expectation that Turkish activity will pick up in Q1 2015.
This then triggered buying from domestic mills that have rapidly seen spot prices accelerate up to $30/ton in mid-month. If the Chinese cut VAT rebates then there could be a further uptick as this adds to the cost of buying Chinese long products and billet – thus driving Asian buyers back to buying scrap, too, and pulling more material out of the West Coast.
Mid-December buying is unusual as US mills usually don’t want inventory on their year-end books, but the consensus for a jump in January was so strong that mills are, in our opinion, trying to get ahead of the curve. This will feed through to a higher January settlement.
There were other factors. Shredded scrap operating rates have dipped in the last couple of months in the Midwest as prices fell, and that means a shortage of scrap on hand, although other grades are in better supply. Western New York volumes into scrap yards have also been weak for the last month or so following the snow in Buffalo.
If the weather is poor in early 2015, then this price increase could be supported through February and even into March, but prices are then expected to weaken. We expect US shredded scrap prices to range between $300-350/ton for most of the year – a new normal compared to most of 2014 when they were closer to $400/ton.
Steel-Insight is a steel industry price-forecasting publishing company, based in Toronto. James May, the firm’s managing director, has been a steel industry analyst for 15 years and advises some of the major global steel trading companies, steel producers and steel consumers on the outlook for steel pricing and industry trends. For more information, visit www.steel-insight.com.