The metals story this month is mostly about steel

The metals story this month is all about–or mostly about–the domestic steel industry, and it’s all bullish. To some, however, it’s only about higher scrap prices but that’s an oversimplification…those closest cite a number of related issues that has led year-to-date finished steel prices moving higher and faster than most anyone would have guessed as last year ended. For March deliveries, the range now quoted for hot-rolled sheet in coil (HRC) is $640 - $670/net ton f.o.b. (World Steel Dynamic’s SteelBenchmarker has the current spot market for HRC at $598…

The drivers include low inventories of scrap and finished steel going into 2008…add to that, steel makers also can credit lower steel imports, low service center inventories, increased export opportunities, production problems at Arcelor-Mittal and Severstal and other steel-making cost increases such as energy and transportation costs…in sum, it’s about short supply and that’s overshadowing concerns that domestic steel demand is only OK at best.

Our friends at Goldman Sachs characterize the domestic steel market as one experiencing a “short supply” position that they believe will be with us till mid-year, thereby underpinning finished steel prices, and scrap. Even acknowledging that their own economists are calling for 0% growth this quarter and negative growth for the second quarter, the domestic market, they believe, will remain relatively tight due to an inability to supply all markets as a result of low domestic capacity relative to consumption and the fact that imports are not an issue due to price…

The Goldman Sachs analysts also reckon that HRC prices this year will average “about 10%” higher this year compared with 2007.

A closer look at ferrous scrap has published reports showing domestic regional prices for No.1 heavy melting scrap (HMS), delivered, at $340- $350/gross ton…Midwest shredded at $385-$400 delivered…P&S (plate and structurals) grades are in a range of $360-$375…in effect, many grades are up some 70% since last November and are fast gaining on some of the record high scrap prices set late 2004…

The Iron Age No.1 HMS composite was figured @ $329.17, up $58.34 from a month ago and compared with $105.84 a year ago…GFMS expects shredded scrap to push towards record levels by the second quarter of “over $425/ton.”

On the scrap export side, the prices are equally eye-opening with our sources reporting that Turkey is paying $460/metric ton for an 80/20 mix and some exporters have asked for at least $480…

Other sources place HMS delivered to East Coast docks at the mid-$340/gross ton level…Japan also sold No.2 scrap to Taiwan at $400 f.o.b. This week’s American Metal Market noted that containerized shredded scrap to India is “now touching $500 a metric tons, delivered…” Yipes!

Looking at nonferrous, here are a couple of recent forecasts:

Merrill Lynch sees copper lower this year by about 7%, placing the red metal at $2.95/lb by year-end…the firm is bullish on nickel and zinc…

Citigroup, however, says they’re still “comfortable” with their 2008 copper forecast of $3.50 while we note that Chile’s central bank is forecasting copper to average $2.95 this year…

Macquarie Bank has also revised their forecasts for several base metals…here’s their latest London Metal Exchange (LME) cash averages for 2008: Aluminum $1.15/lb; copper, $2.80; lead, $1.34; zinc, $1.15; nickel, $12.50.

Anyway, the Institute of Scrap Recycling Idustruies’ Market Forecast story (Jan/Feb 2008 issue of Scrap magazine) came up with a consensus guess of around $3.10 as an average for LME cash this year…we’ve also observed that more recent revisions have been on the downside since that article was written this past December…the key, we suppose, is to forecast often…often wrong but never in doubt…