SCRAP CONTINUES FREE FALL WITH $50 A TON DROP IN OCTOBER
POSTED OCTOBER 12, 2015
Ferrous Scrap Prices fell by $50 a gross ton in an October Market that has left the Industry reeling. The lack of Mill demand, coupled with a strong US Dollar, has caused prices to drop to levels not seen since the 2008 Financial Crisis.
3 major factors are contributing to this price collapse, and based upon these fundamental issues, there is no indication that prices will rise anytime in the near future.
FACTOR #1 - WEAK MILL DEMAND. Domestic demand for finished Steel is weak due to the country being flooded with Imported Steel from China, Turkey and India. A strong US Dollar gives these countries an upper hand in selling product to US Manufacturers. Even worse is Chinese Steel that is being subsidized by the Chinese Government, giving China the ability to sell Steel directly to US Manufacturers below the cost of US Steel Mills ability to make it.
FACTOR #2 - A STRONG US DOLLAR. The strength of the US Dollar when compared to currencies from the European Union, South America and Asia, has eliminated the Export of US Scrap Metal to these Nations- they cannot afford to purchase US Scrap. China's recent devaluation of their Yuan has further wreaked havoc in the Scrap Market. When there is no opportunity to export Scrap overseas, the US is flooded with Scrap putting further downward pressure on Scrap prices domestically.
FACTOR #3 - PLUNGING OIL PRICES. With Oil dropping from $120 per barrel to $45, the freight cost to ship Finished Steel to the US has plummeted, giving foreign nations cheap shipping costs.
Plunging Oil prices have also wiped out the growth of the domestic oil and gas industry, which purchases significant amounts of finished steel product. With this industry on its back, demand for finished steel from US Mills is significantly reduced causing Scrap prices to tank.
WHAT DOES ALL OF THIS MEAN FOR SCRAP METAL PRICES
In October 2011, Shredded Scrap, an Industry Benchmark, sold for a average of $455 a gross ton. This October has seen an average price of $180 a gross ton, a monumental drop.
Busheling has dropped to between $190 and $180 a gross ton. Machine Shop Turnings have plummeted with reported prices between $50 and $75 a gross ton.
Unless The Federal Government issues new tariffs on the importing of foreign steel, domestic demand significantly increases due to true investment of our countries aging infrastructure, or the price of Oil moves upward due to OPEC price cuts, this trend of low Scrap prices will continue for the foreseeable future.
COPPER DROPS ON WEAK CHINA DEMAND
POSTED JULY 13, 2015
LONDON, July 10 (Reuters) - Copper slipped on Friday and was set for a weekly fall of about 3 percent as concerns persisted over top consumer China's demand for the metal even as stock markets there recovered and in Europe hopes grew for a deal between Greece and its creditors.
Chinese stocks bounced sharply for a second day on Friday, regaining a degree of composure after a barrage of government support measures to halt panic selling earlier this week.
Greek Prime Minister Alexis Tsipras appealed to his party's lawmakers to back tough reforms after offering last-minute concessions to try to save the country from financial meltdown.
But in copper, worries about Chinese usage persist.
"Fundamentals right now are clearly not good; there's no doubt about that. Chinese demand looks bad this year because the State Reserves Bureau is not buying in the same way as last year," said Nic Brown, head of commodities research at Natixis.
Three-month copper on the London Metal Exchange was last bid down 0.9 percent in official midday rings at $5,579 a ton. Prices dropped to six-year lows of $5,240 on Wednesday.
Buyers of copper and aluminum in China reduced spot purchases in domestic and international markets this week after the country's equities rout reduced liquidity for buying.
Also, inventories in warehouses monitored by the Shanghai Futures Exchange rose 3.7 percent from last Friday to 105,276 tons, reversing 13 straight weeks of falls.
On the plus side however, premiums for bonded copper in Shanghai climbed $5 to $70, the highest in a month, reflecting bargain hunting after copper's price plunge.
Added to this, China traders could buy more copper from global markets in coming months as the sharp falls in LME copper have opened up a profitable import arbitrage.
Aluminum traded down 0.2 percent at $1,695 a ton in rings.
"China has been exporting large quantities of aluminum recently. If aluminum prices were to remain low for any length of time, however, output would doubtless be cut in China after all -- this at least is the consensus among local smelters, traders and refiners," Commerzbank said in a note.
It added that production cuts could begin as soon as the end of July or early August if the aluminum price in Shanghai does not settle above 12,000 yuan per ton in the next few weeks.
SCRAP PRICES DROP IN JULY
POSTED JULY 12, 2015
As you know, Scrap prices collapsed in FEBRUARY.
They went sideways for MARCH APRIL MAY.
They came up by approx. $25 per gross ton for JUNE
They just dropped approximately the same for JULY.
So we are back to February Levels and it looks dimmer for August.
SO WHAT IS CAUSING THIS?
WHAT WILL SIGNAL AN INCREASE?
HOW LONG COULD THIS LAST?
WHAT IS CAUSING THIS COLLAPSE IN SCRAP PRICING?
Scrap Prices are based upon Supply and Demand, like everything else.
Our DEMAND comes from 2 places:
#1 US MILL DEMAND
#2 DEMAND FOR SCRAP EXPORT TO OTHER COUNTRIES
US MILL demand is down significantly- why??
BECAUSE THE US DOLLAR IS SO STRONG
-this gives manufacturers bigger buying power to purchase NEW STEEL from FOREIGN COUNTRIES.
-the dollar really isn’t strong-our economy stinks- it’s just strong because China, and THE EUROPEAN UNION are WEAKER than we are!!
Look at what’s happened with Greece and China- both are in big trouble economically!!!
THE PRICE OF OIL HAS TANKED
-last summer, Oil was at $120 per barrel- it is now hovering at $52
-this makes it even cheaper for US MANUFACTURERS to purchase foreign steel instead of buying US- the shipping costs have been cut in half!!
FOREIGN COUNTRIES ARE NOT BUYING OUR SCRAP
-the rise in Scrap prices over the past decade have been a result of us EXPORTING SCRAP to China, Turkey, India and Japan.
-the US is now EXPORTING NO SCRAP!!
-so the US STEEL MILLS are saying, "HERE IS OUR PRICE-TAKE IT OR LEAVE IT!!"
WHAT WILL SIGNAL AN INCREASE?
The only way Scrap goes back up in the future will be when other countries start buying US Scrap and/or US demand for New Steel Increases.
WHAT WILL TRIGGER AN INCREASE??
-if somebody goes after ISIS and disrupts the flow of Oil, causing Oil to increase to $70 a barrel of higher, this would make it more expensive to ship new steel to the US, causing US Manufacturers to purchase US STEEL, making the demand for Scrap increase!
-if China's economy starts to grow again. This is highly unlikely from an organic standpoint. China has spent hundreds of Billions of Dollars in the past 7 years to prop up their economy- it isn't reality. There are entire new cities that have been built that are empty.
-if the US Demand for new steel grows, increasing the need for scrap- this is also unlikely in the near term.
-if/when foreign countries economies pick up and start purchasing our scrap. If the IMF can cut a deal with GREECE to stabilize the country and things start to turn around in the European Union, the demand for scrap will grow pressuring US Steel makers to increase their prices for Scrap.
HOW LONG COULD THIS LAST?
Every indicator/expert I have spoken to, says this carnage could last another 12 months before we start to see a turnaround. It isn’t pretty and could get much worse!
HOW ARE WE DOING?
We are doing great! We have added several new customers during this period of strife, as we continue to provide the same benefits to our customers as we did during good times! We have plenty of financial resources and can endure this period of uncertainty while still growing our business.
Despite June bump, scrap prices still well behind 2014
For most of the first half of the year there has been a good news-bad news aspect to ferrous scrap exports. The good news is that export tonnages have been over 1 million tonnes for most months from January through April. The bad news is that year-over-year tonnages are running about 7 percent behind last year, and about 33 percent behind 2013 levels.
At the same time, domestic raw steel output also has been relatively stagnant, running about 7 percent behind 2014’s year-to-date numbers through the first nearly six months of the year, keeping a cap on mill demand.
In part because of those two trends, which normally tend to suppress scrap value, prices today stand at $100-$150 less than they did exactly one year ago. Heavy melting, dealer bundles and busheling are about 30 and 35 percent respectively behind last June’s figures, while shredded scrap is about 24 below last year.
The difficult winter, which greatly slowed down scrap generation and transportation, is credited with helping to keep supplies low, which kept pricing up to begin 2015. But since February’s massive decreases, prices have risen across the board significantly in only one of the past four months–June.
Ferrous scrap markets endured a bear market through much of 2013 and 2014, and so far 2015 is worse than anyone expected just six months ago, and is not promising a healthy recovery from current pricing levels.
Scrap Metal Prices Collapse
SCRAP METAL PRICES DROP MORE THAN $100 PER GROSS TON
February scrap prices reaching lowest levels since 2009
If one wants to look for a culprit for the precipitous plunge in ferrous scrap prices this winter, then one need look no further than the continuing strength of the U.S. dollar. A stagnant economy in the European Union, a pullback in Chinese growth, and a virtual collapse of global commodity prices have sent investors and importers on a mad scramble for U.S. dollars.
The result is a U.S. dollar that is soaring in dollar against just about every currency out there, including the Chinese Renminbi, the Euro, the South Korean Won and the Japanese Yen. That has created a veritable triple whammy for the U.S. ferrous scrap industry. Scrap exports have dropped more than 40 percent since 2011, creating a surplus of 9 million tons last year that sought homes at domestic mills. The strength of the U.S. dollar against the Canadian dollar has unleashed a flood of Canadian scrap into the U.S. Midwest and Ohio Valley. And a growing surge of import finished steel is creating a competitive challenge for the domestic steel industry, which reduces demand for domestic ferrous scrap.
The precipitous drop in ferrous scrap exports is perhaps the biggest problem faced by scrap dealers and brokers nationwide. According to the U.S. International Trade Commission, ferrous scrap exports totaled 15.3 million tons in 2014, a drop of 3 million tons from the 18.3 million tons reported in 2013. Scrap exports from the U.S. have now dropped 9 million tons from the 24 million tons reported in 2011 and are at their lowest annual levels since before the Great Recession. And those are 9 million tons that now have to be absorbed by domestic steel consumers.
The slowdown of growth in China has been particularly calamitous for U.S. ferrous scrap exports. In 2011, China consumed 4.2 million tons of U.S. scrap. That dropped to 1.9 million tons in 2012 and slid further to 1.8 million tons in 2013. In 2014, China consumed 785,000 tons of U.S. scrap, lower than the amount of U.S. ferrous scrap consumed in Canada. In 2011, Egyptian consumption of U.S. scrap was less than a quarter of that consumed by China; last year, Egypt surpassed China as a consumer of U.S. scrap.
The strength of the U.S. dollar against the Canadian dollar is creating a second import-export problem for U.S. ferrous scrap processors. The U.S. dollar in mid-February was approaching $1.27 against the Canadian dollar, up from $1.21 at the beginning of the year. What that in essence means is that Canadian scrap processors have about a 25 percent incentive to ship their scrap to U.S. mills and foundries. That's about $75 on $300 ton scrap, which easily offsets the $30 a ton or so that Canadian processors pay in freight fees to ship their scrap south of the border. As a result, scrap dealers in much of the Midwest and Ohio Valley are competing with a flood of cheaper Canadian scrap.
A number of factors converged in recent weeks to bring the market down more than had been seen in over five years. Much of it has to do with factors that have an impact on mill production, although some also is related to supply levels, which mill buyers found to be more than adequate this month.