You can anticipate even-higher prices for scrap, metals

As April ended, published sources such as World Steel Dynamics (WSD) have No.1 heavy metal scrap at $500/gross ton; shredded scrap at $557, and No.1 bushelings at $587, delivered to the mills. WSD’s prices are in line with others. AMM, meanwhile, is quoting September pig iron at $690/mt delivered to New Orleans; Iron Age has the current pig iron market @ $671 f.o.b. New Orleans.

And, next month? May buying for ferrous scrap is well underway (and) most in the trenches are anticipating higher numbers for both prime and obsolete grades, with bundles setting the upper range…published sources are reporting a potential increase of +$50 for bundles, and +$20 for old scrap. As we understand from our friends at Steel Business Briefing, the monthly Chrysler scrap auto bundles auction increased an additional $135/gross ton for May, pushing the new price for the prime grade to $710. We, and others, were hearing of a number closer to $50 but we’re awaiting confirmation.

Yipes, and yipes again
On the finished steel side, Purchasing magazine’s April 30th “Flash Report” placed the April average for hot-rolled sheet at $850/net ton. That’s up 15% over March and “67% above the cyclical nadir of $580 last August.” All this bullishness comes at the same time many are questioning the steel demand side of the equation and the relative strength of the U.S. economy, given the latest on GDP growth 0.6%). Others, however, counter by citing the supply side for finished steel and fast rising costs as the price drivers – well beyond what we’re seeing just for ferrous scrap. Anyway, Purchasing is looking at a forecast for HR to average $950 next month, $1100 in June, and $1150 for July. Also, as April ended, Platts had its reference price for hot-rolled at $1,006/ton, ex-works Indiana…

So, are we near a top? The big picture view from GFMS thinks that the “short term peak is relatively near” with respect to finished steel prices. As evidence, the firm cites Chinese export volumes that should settle the international markets in the third quarter due to higher Asian inventories and lower seasonal demand in the U.S. This, they believe, will be enough to bring prices off their recent highs this quarter and next, but they also do not believe that the drop will be “hugely significant.” For the full year, they’re forecasting hot-rolled at $943…

Here’s a look at some of the May/June 2008 “Marketrends” column in Scrap magazine.
Aluminum: After months of relative price stability, aluminum activity increased in the first quarter. Prices were trading at 21-month highs over weather-related concerns that energy shortages in South Africa and China would curtail primary production. In the short to medium term, the combination of supply disruptions, high energy prices, and a significant interest by funds to diversify into commodities suggests that there may be room for prices to trend higher in the months ahead, offsetting a domestic market that is showing little end-use strength. At ISRI’s April convention, speakers forecast LME cash aluminum to average $1.26/lb this year, compared with last year’s $1.20/lb average.
Copper: The red metal’s second quarter looks especially firm to several commodity and industry analysts. As many now see it, global refined copper supply appears less than secure due to ongoing supply-side issues that are resulting in inventories returning to all-time lows and prices potentially establishing all-time highs, propelling scrap values as well. LME copper traded at a record $8,820/metric ton in March, and LME copper inventories were down 40% as the second quarter got underway. Recent forecasts for a second-quarter LME cash per-pound average range from $3.50 to $4 based on copper’s global fundamentals along with hedge funds adding to their respective long positions.
Iron and Steel: The domestic steel industry is struggling with low imports, low inventories, extended leadtimes, higher input costs (for coke, coal, iron ore, scrap, energy, and transportation) and a weak dollar that has lifted exports of scrap and finished steel over the first quarter. Analysts expect this trend to continue well past mid-year, despite concerns about relatively weak domestic demand. April’s benchmark hot-rolled coil prices were up more than 50% since the start of the year, and independent sources are calling for another 29% increase in the second quarter. International Iron and Steel Institute is forecasting that 2008 will be another strong year for the global steel industry, lead again by the BRIC countries of Brazil, Russia, India and China. IISI expects those countries’ production to increase 11% this year and 10% in 2009.
Lead: The global picture for lead suggests that the 2008 market will remain in deficit. In fact, some analysts believe that last year’s shortfall was much greater than the International Lead and Zinc Study Group initially reported because of lower-than -expected Chinese production, Australian mine production supply disruptions, and relatively high lead prices that inhibited imports of lead concentrates. Forecasts that Metal Bulletin Research offered at ISRI’s convention placed the LME at an average of $1.10/lb this year, with the caveat that China’s tax policy and its subsequent effect on lead exports to the West will have a major influence on prices.
Nickel and Stainless: Nickel’s familiar volatility was apparent in the first quarter of the year, spurred on by a well-publicized mine strike in Columbia and improved consumption prospects from the stainless steel sector. Combined, these forces propelled LME cash above the $15/lb mark in March. Looking ahead, however, several analysts have concluded that the global nickel market is trending toward a modest surplus and that nickel stocks will remain relatively high. A recent CRU Group (London) forecast placed LME cash nickel at an average of $13.91/lb in 2008, with next year’s potential range of $14.80 to $18 before a growing supply surplus forces prices “sharply” lower by 2010.
Zinc: The global picture for zinc remains essentially unchanged from the broad outline the March/April Marketrends column offered. LME zinc values firmed over the course of the first quarter, with the three-month contract averaging $1.11/lb, but the price is well below what the market experienced in 2007. As it will in the lead market, China will remain a wild card influencing this year’s overall zinc supply/demand balance. A consensus of market participants and analysts expects to see a relatively small zinc surplus emerging this year, with prices averaging close to what they were in the first quarter.