Steel prices, which had been stuck in a narrow range for much of the year, began to slip in early autumn and may continue to fall into winter. While strong manufacturing trends continue to be reported by many buyers, hot-rolled coil traded at $640/ton Free On Board the steel mill in mid-November, and cold-rolled averaged $765/ton. This is down from $675/ton and $790/ton respectively. Port inventories of flat-rolled steel have been high in recent months, and Metals Service Center Institute (MSCI) stocks have also increased. Both are expected to continue climbing, further pressuring prices. In addition, lead times from mills have started to shorten amid reports of orders being delivered earlier than promised. Lastly, global demand and export trends, particularly those involving China, continue to negatively influence steel raw materials pricing of iron and coal, also contributing to price weakness.
The tide turned against U.S. ferrous exporters in the fourth quarter, and their hopes for a turnaround in the first quarter have grown dimmer. Offshore prices for key obsolete grades like No. 1 heavy melt and shredded scrap have sunk to their lowest levels in four years. Prices paid for heavy melt at the U.S. East Coast docks have slipped to $245/ton at mid-November and were expected to drop even further by year’s end. Also, the stronger U.S. dollar has enabled scrap exporters in Europe and Japan to undercut the prices of U.S. scrap. More troubling were the lost sales. U.S. ferrous scrap exports have been receding for the past three years and the downturn in the fourth quarter has exacerbated that trend.
Scrap supply shortages and transport problems may drive up prices in January and February of 2015, if steel demand is as strong as it has been this year.
The weak export demand left U.S. ferrous scrap exporters and many coastal scrap yards looking elsewhere to find homes for their scrap. That meant reaching farther inland and offering shredded at deep discounts of as much as $60/ton since the start of the fourth quarter and taking market share away from local dealers in those regions. That dropped the average price of shredded to as low as $325/ton delivered to mills in the Chicago area at the start of December. No. 1 heavy melt was trading in a range of $315-$320/ton in the Midwest. Industrial steel scrap like No. 1 busheling lost value as well, dipping below $355-$360/ton in Detroit and Chicago, but scrap dealers had no trouble placing tons at many of the domestic flat-rolled mills.
Scrap prices were expected to bottom out in December when mills typically minimize purchases of scrap and other raw materials, as the end of the fiscal year approaches. At year’s end, most scrap dealers and processors focus less on the bottom line and more on building inventories of heavy melt and shredded scrap in anticipation of a declining seasonal intake of obsolete scrap during the winter months.
A repeat of last winter’s colder temperatures and numerous snow-storms will not only reduce the flow of materials into yards, but could also hamper rail and truck deliveries to many mills. Scrap supply shortages and transport problems may drive up prices in January and February of 2015, if steel demand is as strong as it has been this year. Exports remain the wild card. If the offshore remains weak and the price slide at the docks continues, it could leave a surplus of obsolete scrap overhanging the domestic market in the first quarter and driving domestic scrap prices even lower.
The fourth quarter will define how basic fundamentals will play against investors who are trying to ride volatility and square their books by year-end. Although the U.S. economy is steadily improving, fears of an interest rate hike next year and diminished optimism out of Europe and Asia, will continue to put pressure on global equities. Investors may reconsider their investment opportunities and find placing their money in commodities an unsure bet with the dollar recently strengthening over major currencies. (The dollar will more than likely continue to strengthen over most currencies. The challenge is how to play the dollar against commodities if the correlation between the dollar and commodities breaks down: Normally a stronger dollar indicates weaker commodity prices). However, global events will more than likely make their bets short term. China’s possible new norm of 7% growth will dampen demand, and fundamentals may trump as the fourth quarter ends and market participants begin to look in earnest toward the first quarter of 2015.
Both aluminum and zinc prices are fundamentally supported by a supply deficit, and going into 2015, premiums for both metals are expected to increase. On the other hand, nickel, lead and copper prices are being driven by speculative funds. Support for higher prices in the latter half of 2015 is driven by expectations of a looming deficit. Prices could be supported well into 2016 until the Indonesian nickel pig iron (NPI) industry is in full production.
Currently European and U.S. stainless steel consumers have adequate inventories and are not aggressively in the market. Inventories of stainless steel scrap are building with price indications for 18/8 scrap ranging in Europe between US Dollars $1400-1430/MT, and 316 at USD $2000-2050/MT. Recently, Asian prices have been softening by USD $100/MT and are now in line with European prices. European nickel foundry premiums are softer from this past spring and late summer after reaching USD $235/MT. Premiums are currently quoted at USD $185/MT
Copper prices have slumped since the beginning of the third quarter as the supply of both scrap and copper cathode increased. Copper cathodes on warrant have only sellers, and lower premiums are being tested with each transaction.
Aluminum will be moving to a supply deficit in 2015, and the markets are currently showing increased premiums for prompt P1020 and 6000 series billet, both in the U.S. and worldwide.
Information provided by the editors of MetalPrices.com