Volatile and sliding steel scrap prices dominate marketplace chatter

Following last week’s payrolls report, many are thinking that the so-called V-shaped recovery may have lost its upward thrust. When it comes to consumer spending, fear of unemployment is almost as bad as actual joblessness…

On more positive note, Monday’s Institute of Supply Management (ISM) Non-Manufacturing index came in better than the consensus expected, signaling growth in the services sector for the first time since last September and the collapse of Lehman Brothers. The business activity and new orders indexes, at 55.1 and 54.2, respectively, are each at their highest levels in almost two years, according to FT Advisors. At the same time, however, the report also showed that the employment index still signals relatively weak demand for labor.

In the ferrous market, there’s lots of chatter about lower steel scrap tags this month with the range figured $20-$30/gross ton lower for items such as shredded scrap. Canaccord Adams figured that market @ $270/ton, currently, with overall scrap fundamentals in balance that, in turn, “…will keep a lid on prices…” and thus help margins for consumers of prepared material. Platts, meanwhile, is reporting shredded scrap this week in a $260/ton - $275/ton range, delivered Midwest.

This week’s Scrap Price Bulletin has its No.1 HMS (heavy metal scrap) composite prices at $248.59/gross ton, down $11.67; shredded was figured at $282.50 and their No.1 Chicago bushelings price was placed at $327.50/ton, down $10/ton. Our contacts believe that we’ll see even lower numbers reported next week. IHS Global Insight, for one, sees a $50-$70/ton fall by year-end.

Iron Edge Research analysts suggest that hot-rolled sheet (HR) prices will be determined by the trend in domestic scrap prices that they say is highly sensitive to the export prices. But without a worldwide fall in ferrous scrap prices this quarter, they also believe that a corresponding “material fall in domestic hot band…is unlikely.” Steel Market Intelligence also sees “…little downside in domestic pricing” with HR said to be supported by “rock bottom” inventories.

But then there’s the China Factor to consider and the worry that what has been termed “aggressive” Chinese export offers in Europe and Asia will pressure prices here until the steel market fundamentals in China improve. In related news on steel trade, steel imports into the U.S. likely rose by as much as 20% in the month of September, according to import data released by the Department of Commerce. Steel Market Intelligence notes this week that, “The uptick in foreign steel into the U.S. is particularly onerous.”

For some perspective on all this, HR prices have increased by slightly more than 40% from lows posted this past June. Platts, for one, does not believe that service centers have received anywhere near that increase on the re-sale side.

More current news places HR in a range of $520-$580/net ton, f.o.b. mill, east of the Rockies, averaging $550/ton, according to Steel Market Update, with “… the vast majority of hot rolled is being sold in the $540-$560 per ton range.” As they see it, “The trend continues to be for prices to go lower over the short term.”

(Editor’s Note: Purchasing.com says buyers this week are Domestic mill hot-rolled steel sheet pricing remains in a range of $535-$555/ton this month from recent f.o.b. ex-mill average highs of $570/ton and announced mill list prices in the $600/ton vicinity.)

In the nonferrous arena and in our continuing effort to report the latest base metal predictions for 2010, here’s yet another — this one from Citi Investment Research & Analysis, which forecasts London Metal Exchange (LME) cash copper at $2.91/lb, aluminum at 85¢, lead at $1.20 and zinc at 85¢.

Compared with others, Citi Research’s 2010 copper outlook is a little more conservative compared with, say, Goldman Sachs, Barclays Capital, and RBS, but higher than MF Global’s price expectations for next year. And as we’ve said, forecasts have sure gotten more bullish from where we were just a few months

The July Reuters survey, for example, came up with a consensus cash copper forecast for this year and next at $1.96/lb and $2.33/lb, respectively. Year-to-date, copper has averaged $2.12/lb.

There’s not a lot of fresh news or significant scrap price changes to report for the major base metals this week, so we’ll highlight a few metals from the latest report from Barclays Capital. For aluminum, the firm is seeing improving demand with recovery led by the OECD nations along with smelter restarts adding to the supply surplus they’re forecasting for 2010 - but lower than this year’s. The Barclay’s 2010 aluminum forecast has aluminum averaging 86¢/lb vs. this year’s $0.74¢ projection. Year to date, cash aluminum has averaged about 71¢/lb.

Copper is forecast to average $2.17/lb this year and $2.98/lb next year. The two short term negatives Barclay’s sees affecting prices are rising exchange inventories and the recent declines in Chinese imports of refined copper. A slightly longer look is more encouraging with Organization of Economic Cooperation and Development (OECD) regional recovery assumed to impact metals sooner than later. Global consumption next year, Barclay’s notes, will outpace new production resulting in a smaller overall metal surplus being forecast.

With nickel, it’s all about China and concerns over lower imports of nickel and higher stainless steel production. Added to that is the rise in LME inventories. The outlook for nickel, they say, is dependent on the level of restocking by the stainless steel sector and the level of new primary nickel production. As Barclays sees it, nickel is trending towards a nickel deficit next year, and with it an LME cash average of $9.75/lb.