The U.S. ferrous scrap market continues to move towards yet, another bottom. Prices are entering a territory not seen since the 2008 financial crisis, falling $50 a ton from September levels. Everyone assumed September was the low point, but unfortunately prices continue to fall drastically. With the market headed lower than expected, scrap dealers are faced with very low margins and inevitable losses.
Some factors contributing to the drop in the market:
- Abundant volumes of various scrap grades available for mills to consume.
- Stagnant steel mill capacity utilization, which remains in the low 70% range.
- Mills 4th quarter order books are thinning due to falling prices and import pressure.
- New steel buyers can purchase from an abundant supply of imported steel
at cheap prices thus placing pressures on domestic prices.
These conditions have led to a seriously weakened ferrous scrap market. A big player in the import/export game is China as they are able to export steel to the U.S. for less than domestic mills can make it. In addition, the stronger U.S. dollar has resulted not only in cheaper steel imports, but relatively more expensive and less competitive U.S. scrap exports.
China continues to grow, even though at a much slower pace than in the past, this is disruptive, but not catastrophic, and will take some time to even out. Until that happens, we will continue to work towards and adapt to a new normal.
Base metal prices have continued their weakening trend through September. Copper prices have firmed up the past 30 days due to some short term supply shortages in the market. Comex copper prices peaked at $2.46 lb in September but could not hold this higher ground and quickly receded back to the $2.30 lb level. Aluminum prices have struggled to find their equilibrium due to ample scrap inventories and prices fell 2 cents or 2.5% over the past 30 days. The only base metal seeing green this month is Nickel as it runs its rollercoaster course. Nickel prices have been teetering between positive and negative ground weekly but ended the month up slightly slowing their recent pricing freefall. Stainless prices are not likely to recover anytime soon because most stainless grades are only 5-10% nickel so small price increases in nickel alone does not translate into increased stainless prices until nickel prices rise substantially and consistent.
In the commodities world, the entire metals spectrum is under pressure from falling Chinese demand. China is not more than 20% of the world’s economy. But when you think about commodities, (China) is about 50%. China also consumes 40 to 50% of the world’s steel, aluminum, copper and other metals, so obviously every eye in the industry is watching its development.
|As of October 2, 2015||% Change|
|COMMODITIES||1 Month||6 Month|
|Copper Comex ($/LB)||$ 231.75||-0.5||-15.3|
|Aluminum 3Mo ($/LB) – LME||$ 0.71||-2.5||-12.4|
|Nickel 3Mo ($/LB) – LME||$ 4.55||1.6||-23|
|Lead 3Mo ($/LB) – LME||$ 0.74||-4.5||-12.9|
|Zinc 3Mo ($/LB) – LME||$ 0.76||-7.8||-21.3|
|Gold (LB/OZ)||$ 1,106.20||-2.4||-8.1|
|Silver ($/OZ)||$ 14.47||-1.5||-13.7|
|Crude Oil ($)||$ 45.22||-3.5||-17.4|
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