Scrap cost collapse causes steel bar prices to fall

Mills reduce prices of steel rebar, merchant bar

By Tom Stundza -- Purchasing, 9/17/2008 8:46:00 AM

With benchmark shredded scrap prices collapsing by $170/gross ton this month to $400, some steel producers have cut prices by $70/net ton on rebar to $986 and $50/ton on merchant bar to $994. Nucor and Gerdau Ameristeel have issued letters to customers indicating that they have cut prices on both steel long products while Keystone Steel & Wire has cut rebar prices by $70.

 “With scrap prices falling, steel prices are going down,” says Denis McMorrow, president of metal deck maker D-MAC Industries in Alpharetta, Ga. But he and other buyers say actual sales are lower than the mills are acknowledging--with rebar as low as $900/ton and merchant bar as low as $953. Rebar is used to strengthen concrete in structures ranging from bridges to buildings; merchant bar has myriad industrial and commercial uses and comes as rounds, flats, angles, squares and channels.

 “While we support the fact that globally the current bar market softness is due mostly to seasonal issues and that we will see a rebound in global demand in the fourth quarter, we believe a measured decrease in transaction prices is warranted at this time,” Nucor says in its letter. What’s happening is that the scrap-fed steel mills have adjusted list prices and scrap surcharges on bar products in a rather Byzantine manner, but the net effect is sliding transaction prices.

“Clearly there is some weakness in steel prices,” agrees analyst Chuck Bradford at Bradford Research/Soleil Securities in New York. He also reports reduced demand for rebar, small beams and other bar and structural products that had been held up previously by nonresidential construction activity that has begun to weaken. Atop that, brokers report that export sales of scrap have slipped in tonnage and price since midyear, boosting supply and lowering prices in domestic markets.

Steel scrap costs can be volatile. Prices for No.1 heavy melt scrap, a key obsolete grade, also have dropped sharply from the peak monthly average price in June. The price of about $506/gross ton has now fallen slightly below $300. Also, buyers at Midwest steel mills say prompt industrial scrap, which had peaked at nearly $900, now is closer to $575.

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