Scrap Metal Market Pricing Outlook

June has truly been eventful month for scrap prices.

The recent slide brought ferrous scrap prices to the lowest level since late 2010 — and, according to several editors and analysts speaking during a Platts webinar last week, the months of May and June drove home point of how influential the US East Coast scrap export market is.

The East Coast market is, in turn, influenced primarily by Turkey and India. Turkey, of course, is a huge importer of US scrap, but even scrap dealers can’t effectively forecast what will happen to scrap prices. Jarek Mlodziejewski, an analyst at The Steel Index, said he visited Turkey recently to speak with scrap buyers. “If you ask them they think will happen next week, they just laugh in your face,” he said. It’s such a dynamic market day-to-day now, he said, and macroeconomic sentiment is weighing heavily.

There are other issues that have led to the scrap price volatility the markets have experienced in 2012.

Currency valuation, the weather, scrap inflows, and market sentiment are all short- to medium-term drivers of ferrous scrap prices, according to Nick Tolomeo, associate editor of raw materials at Platts. However, the biggest impact is consumption, especially with the move toward EAF steel production, Tolomeo said. Overall consumption is the ultimate driving force for the supply and price of scrap.

In terms of domestic supply, the speakers indicated there don’t appear to be any shortages of scrap in the US. In 2009, the Institute of Scrap Recycling Industries (ISRI) stated that over 1 billion tons of recoverable scrap are available in the US, so as long as scrap buyers are willing to pay, they can get their hands on the raw material, Tolomeo said. Also, even though export restrictions are of concern to some, US exports of scrap look to continue increasing 5 percent on yearly basis.

Looking forward, when asked if he sees ferrous scrap prices stabilizing over next four months, Mlodziejewski said that prices are up to demand, and that we could potentially see China take more export material in, taking up prices. Turkey will keep needing scrap, but the US economic recovery fragile. As to specific price targets, it’s “anyone’s guess really,” he said. “I throw my crystal ball away and see what happens.”

So how to use hedging in the ferrous scrap market? Unfortunately, the consensus of the panel seemed to be hedging scrap remains a murky landscape, and is essentially still a function of going out to end users and sellers and creating a dialogue with them.

One thing’s for sure, however, volatility in Turkey and other major scrap markets will get buyers and sellers to undertake new supply and price risk management techniques.

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S.A. StevensonScrap Metal Market Pricing Outlook

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