Steel scrap prices to rise in the first quarter
Metalworking recession could keep prices depressed
By Tom Stundza -- Purchasing, 11/28/2007 12:28:00 PM
Market analysts expect scrap prices to increase in the 2008 first quarter and to remain relatively high, reflecting a decrease in manufacturing in the U.S. Bob Garino, the director of commodities at the Institute of Scrap Recycling Industries, says that “those closest to the ferrous scrap industry see December as a basically a flat-to-sideways kind of month(in terms of pricing) but with a push (for higher prices) for January expected.”
Steel scrap has been weakening in price lately, reflecting soft orders for steel and seasonal factors. The index of all scrap steel prices tracked by Purchasingdata.com averaged 174.7 this month, down from the 2007 high of 207.9 in April. The index began at 100 in January 1994.
Since peaking at $308/gross ton in April, the monthly price of benchmark No. 1 heavy melt in Chicago has slipped in an erratic pattern to $258 this month, according to Purchasingdata.com. The weekly price was slightly lower in the latest Iron AgeScrap Price Bulletin, a subscription pricing service, which meshes with reports this week from buyers of $239..
In a nutshell, customer inventories have been coming down as steel buyers continue to use in-house stocks rather than buying product from the mills. However, distribution industry inventories are quite low (2.6 months supply) and imports appear likely to weaken even further given the weakened dollar and heightened ocean freight rates. So, the mavens think flat-rolled and long product prices will increase along with higher steel scrap costs in the first quarter of 2008.
Still, scrap prices are particularly volatile and have a history of not following the supply/demand basics of Economics 101. So, to paraphrase analyst Chuck Bradford at Bradford Research/Soleil Securities in New York City, there are a lot of risks in steel-pricing forecasts. The main one is that the metalworking economy could be softer than is being assumed—“and a lot of economists are forecasting a recession due to the credit crunch and the sub-prime debt problem,” he says in a report.
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