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Bullish price expectations, visibility sharpen on US scrap

Global Steel & Scrap Outlook: A Platts news and analysis feature

November 22, 2016 - By Nicholas Tolomeo in Pittsburgh

Bullish price expectations, visibility sharpen on US scrap

Global Steel & Scrap Outlook: A Platts news and analysis feature

November 22, 2016 - By Nicholas Tolomeo in Pittsburgh

Bullish pricing expectations and visibility are coming more sharply into focus in the US domestic scrap market on the back of rising steel prices and operating rates ahead of the winter season when already-constrained scrap flows could tighten further, market sources said on November 21.

Many scrap suppliers expect scrap prices to climb during the December buy week and continue to rise in January. "I would call December plus $30-$40, with some additional uptick in January, $10-$20," one Midwest scrap dealer said. "All sectors are showing signs of improving, coking coal, iron ore, pig iron, export bulk and container. Order books are improving, the price of steel is going up and an operating rate increase to follow."

US bulk export sale prices to Turkey have climbed from $208/mt CFR HMS 80:20 basis in late-September to more than $270/mt this month. Export terminals have increased their buying prices to inland suppliers to draw material to the docks. "You have container guys loading orders through December and bulk dealers will continue to need scrap," one Northeast scrap supplier said. "Dealers will finally have control again."

Scrap prices trended about $40/lt higher during the November buy week. It was the first increase in the US scrap market since May. US scrap has lagged international prices and other steelmaking raw materials.

Analysis continues below...

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Coking coal prices have quadrupled so far in the second half of 2016 and iron prices approached $80/dry mt earlier this month, although they have since fallen to around $70/dmt. "Up $20 is in the bag domestically," one trader said. "Mills are starting to feel it. Mills know the real number might have to be up $30 and that January could be strong again."

Even amid the extended visibility in the market, there are many questions regarding the sustainability of coking coal and iron ore prices and how the election of Donald Trump to the US presidency could impact steel and scrap markets.

In the week ended November 18, China reversed course on its decision to limit mining days in a year, reverting back to 330 days, up from the 276-day limit it had imposed earlier this year. The 276-day limit was one of the catalysts for the surging coking coal prices.

"There are a lot of unanswered questions with the new [US presidential] administration and China's intervention in the coal futures," a US exporter said. "At the end of the day, there is not enough scrap in the pipeline, here or abroad. It's a good position to be in if you're a scrap dealer."

A mill buyer believed back-to-back scrap price increases in December and January were "likely and realistic as long as met coal and billets stabilize at the current levels." Mills are attempting to get ahead of any scrap price increases with multiple rounds of flat-rolled price increase announcements.

Since late October, sheet and plate mills have announced price increases totaling $100/st for HRC and steel plate. "It does sound like there are some cracks starting to appear," another mill buyer said. "Not for December and maybe not for January but...iron ore is settling down."

He cited the China mining limit reversal, US bulk export prices that topped $275/mt CFR Turkey in the week ended November 18, but have since stalled, mill operating rates that remain below 70% and the scrap being held on the sidelines by some suppliers who took positions and withheld material starting in October.

"Lots of people now seem to have little positions they are sitting on," he continued. "If the market is up $30-ish in December and again in January [on top of what happened in November] my sense is those little positions will be liquidated and could potentially either mute the January increase or overhang February."

Platts analyzes other steel and scrap products in this feature:

Scrap | HRC | Rebar | Semi-finished | News

Next commentary: Asian HRC jumps on rising China prices, offers

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