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James May

This is part two of a series on the collapse in scrap steel prices. See part one for more background on the scrap situation. Guest contributor James May is managing director of Steel-Insight.

The global scrap to billet price spread fell to less than $100 a metric ton in January. That was unsustainable as that is below the cost of melting scrap to make billet. Either scrap prices had to fall or billet prices go up. With 80% of merchant billet currently supplied by integrated steel mills in China and the former Commonwealth of Independent States and iron ore prices falling, the obvious result was falling scrap prices.

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While the relative position of metal costs is the fundamental reason, there is also some panic in the US market that contributed to the dramatic decline this month. The collapse in demand for tubular products for the oil and gas industries  has led to idling or significant cutbacks at several mills – U.S. Steel Fairfield, Republic (that supplies round billet to U.S.Steel), V&M Star – while the reduction in energy demand will lead to lower order levels for flat product minimills from Steel Dynamics, Nucor and Svenskt Stål AB.

Global Scrap to Billet Spreads $/Metric Ton

Steelinsightscrapchart021115

Source: Steel-Insight

With elevated flat product inventories, buyers have exited the market and are watching mills progressively cut pricing. They know that prices will fall again next week. With mill order levels plummeting, they are trimming production and the marginal metallic – yes, you guessed right – is in very low demand. Mills will always utilize their inventory first. The result was the exit of buyers and scrap dealers scrambling to sell their inventory.

At $250/mt or so, the relative cost position of scrap and integrated metallic is approximately in balance and downside from here is fairly limited. Yet we do not rule out further cuts in the short term. The lower scrap prices improve the cost position of flat and long product minimills. Steel buyers holding inventory will continue waiting out the market and putting pressure on producers to cut prices who, in turn, will further trim production, meaning their forward scrap buys will also be reduced. We don’t expect any major improvement until late in Q2 when inventories of finished products will begin to turn.

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.

Comments (11)

  1. shane says:

    I enjoyed your page but i believe to my knowledge that the reason for the global fall of scrap metal prices is actually RIO TINTO and BHP falt . As they control the amount of iron and what price its produced.
    They price plumeted because they wannt to buy out the smaller mining companies and run the mining industry as the two main big dawgs. As the iron is sooo pure in Australia china is buying it all in at an incredibly low rate . No longer selling their own.
    So basically once rio and bhp own everything they will rocket that price back up . Id say 170-200 per ton and stay like that for many years.

  2. Sudheshan says:

    Can you please update us with the steel prices and if possible let us know when will the market go up again
    Thank you.

    1. Jeff Yoders says:

      Janathasteels,

      Consult our MetalMiner IndX for the latest prices in several global markets and for many different grades of steel and steel products. A full list of the metals and prices available with a subscription is included in this link: https://agmetalminer.com/metals-price-index/

      Jeff Yoders
      Editor

  3. Jon Willams says:

    I work for a small car recycling business we clean out car salvage yards. Last yr at this time anywhere between$ 225-350 per vehicle trucks/vans $275 and up all depending whether they are in one piece. have radiators aluminum rims and converters . What I brought in the scrap last yr at this time would of amounted to at least 700.00 or a more now 488.00

  4. Patrick Cooney says:

    Small, very small recycler. Storing my supply in a pole barn that is getting very full. Won’t take it in until at least a $100 a ton. Right now in Kansas City about $40 a ton.

    1. Jeff Yoders says:

      We are hearing lots of similar stories out there, Patrick.

      Jeff Yoders, editor

  5. micheal niesen says:

    I would like an approximate time when you think the prices will go up was getting 240 a ton for unprepared iron now im lucky to get 30 dollers a ton my land is so full cant put no more on it looking for storage same with copper and aluminium thanks mike

  6. Raul de Frutos says:

    Hello Micheal,

    We don’t have a crystal ball but we don’t expect scrap prices to go up until we see an improvement in commodity markets. Currently, we don’t see anything suggesting an improvement any time soon but markets can change quickly. It’s good to keep yourself updated

    1. Jeff Yoders says:

      Hey Michael,

      James May added this in an e-mail message:

      The short answer is that prices could rally a bit in the New Year – maybe up $20-40/ton. However, we won’t see 2014 prices for a very long time – think 5 years or so. Prices are going to trade in a lower range – about $150-200/ton below the 2014 levels. Copper and brass could improve more quickly, but probably not until the second half of the year at the earliest and even that may be optimistic.

      Jeff Yoders, editor MetalMiner

  7. Susan Daigle says:

    Like everyone else, I’m curious as to when the price of steel will go up. I run an auto salvage yard & we recycle steel. Thx for any help you can provide

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