Ferrous Market
As late as January 24th, the market experts predicted that the prices of domestic ferrous scrap steel in February would remain unchanged. It was unsurprising, as the prices had increased only once in the last 11 years. However, these hopes were shattered when several mills canceled their orders for January shredded and heavy melt scrap on January 31st. The major U.S. steel mills continued to support their goal of reclaiming margins lost to declining new steel prices by once again dropping the hammer on their February ferrous scrap purchases.
To better understand the status of our domestic ferrous scrap market, it is helpful to revisit a basic theorem once again: the domestic ferrous scrap market is a supply-driven market either supported by strong export demand or hindered by weak scrap exports.
Accordingly, weak offshore demand for U.S. scrap has left many regions with an overhang of shredded and heavy melt scrap in February giving the domestic mills additional ammunition to lower their February buying prices. The driving force behind the domestic mills need and desire to lower their scrap purchasing prices in February, and probably into March, is the continuing decline in the price of HRC. The domestic mills used their leverage (lack of imports) to push the price of HRC too high and too fast in the fourth quarter of last year. Consumers have balked at the high price and have been sitting on the sidelines, buying only what is currently needed, while waiting for the price to come down. The domestic mills have the current desire, power, and opportunity to recapture lost margins by lowering the price they pay for scrap. Thankfully from the scrap suppliers’ perspective, the cold winter weather in January negatively impacted scrap flows which may have put a cap on the magnitude of the price drops this month.
Non-Ferrous Market
Nothing much has changed in the non-ferrous arena during the last 30 days with market fundamentals remaining positive and terminal markets in aluminum, copper, and nickel being relatively quiet and trading in narrow ranges as market participants await the annual. Decent domestic macroeconomic news coupled with weaker scrap flows continues to be supportive of non-ferrous scrap prices.
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