September Swoon Hits Ferrous Pricing

Ferrous scrap recyclers have been receiving significantly lower bids for their scrap iron and steel as the post-Labor Day market takes shape.

Recyclers in different parts of the country are reporting that mills are offering from $150 to $280 less per ton, depending on the grade of scrap.

Scrap shippers who held off from selling right after the Labor Day holiday generally did themselves no favors, as mills only came back with offers later in the week that were even lower than their first offers.

 “Sales are definitely being made at these lower price levels,” says one recycler in the Midwest.”Every hour you waited, the price would get weaker—it would drop an extra $10 or $20 every hour,” he says of the days following Labor Day.

However, a recycler interviewed on Sept. 9 says that mills that came back into the market the week of Sept. 8 began offering a few dollars more per ton. “Mill buyers told us they were going to come back into the market on Sept. 8, and indeed they did,” says the recycler, based in the South. “And they came back in a little bit stronger than initially indicated; I think they met some price resistance with their lowest offers.”

Another recycler reports prices received for #1 HMS in the $300 per ton range, down significantly from average pricing above $500 per ton in the late spring and early summer.

Prices being paid for prompt grades of scrap dropped even faster than those for obsolete grades, as an historically wide gap between the grades appears to be finally closing. “The gap was way too wide,” says one recycler, referring to a price difference of nearly $400 per ton that developed between #1 HMS scrap and prompt industrial grades, as measured by the July and August RMDAS figures compiled by Management Science Associates Inc. (MSA).

Factors being pointed to for the lower pricing include a continued weakness in overseas demand for America’s ferrous scrap; slower melting schedules at North American steel mills; and a healthy supply of ferrous scrap at processing facilities that is allowing mills to comparison shop extensively on the spot market.

The Southern recycler reports that Turkish buys off of the East Coast have been coming in at around $360 per ton FAS for shredded scrap. Those orders remain less frequent compared to earlier in the year, however.

The recycler speculates that construction projects in the Middle East may be running into cost overruns, tempering the building boom in a part of the world that is largely served by Turkish mills.

Figures from the American Iron and Steel Institute have indicated domestic mills operating at an 87 to 89 percent capacity throughout 2008, but the Southern recycler believes North American mills have begun ratcheting down their melting schedules. “From what I hear from mills, they have cut back their production rates by about 6 percent, down to an 83 to 84 percent range.”

Prices being paid for finished steel are also dropping, including prices for rebar steel. However, rebar pricing remains stable in China, and steelmaker Nucor Corp. has sufficient confidence in the market to restart the Kingman, Ariz., facility it acquired from the former North Star Steel to begin rolling operations to produce rebar and steel wire.

Developments in the steel industry as summer turns to fall will be watched closely, as a restart in industrial activity could put a halt to the scrap pricing skid. On the other hand, if steel mill order books do not start thickening up, recyclers may find themselves continuing to sell into a market that is weaker than the one in the first half of 2008.