Steel Market Intelligence report: February scrap prices weaken
Scrap continuing to diverge with iron ore
According to Steel Market Intelligence' latest report (Feb. 7), February scrap prices have posted a modest drop. Despite iron ore prices hitting multi-year highs, just-settled February scrap prices declined $10/ton for prime and $9/ton for obsolete, according to data from American Metal Market (AMM). Prime scrap prices are currently selling at the lowest level as compared to iron ore in more than two years.
The bi-polar ferrous input cost trend is likely due to a combination of weak export demand from Turkey and Asia [ influenced by the Chinese New Year ], slightly lower domestic steel production and limited weather-related logistical issues - which normally boost scrap prices this time of year. We believe that Hurricane Sandy-related scrap may still be adding supply to the market, while increased industrial production likely played a role in increased prime scrap generation as well.
Forecast: Domestic Sheet Prices Will Rise Nevertheless.
After trending $10/ton higher (+1.6%) following domestic sheet price hikes ranging from $40-50/ton, Steel Business Briefing's weekly HRC pricing assessment moved sideways the first week of February. Regardless of the modest drop in scrap, we think that domestic sheet prices will strengthen in the coming months as global sheet pricing is near parity with domestic and expected to rise and domestic prime scrap prices should begin to catch-up with iron ore pricing strength.
Forecast: Long Product Prices to Remain Stable. Despite a sharp pick-up in long product imports in January, we expect domestic steelmakers to keep pricing unchanged for athird straight month as seasonally stronger construction activity is near, which should drive improved order activity.
Forecast: Weak Commidty-Grade Plate Demand Continues to Pressure Prices. Despite imports falling for the fifth consecutive month in January, commodity plate prices have continued to decline, with current prices at the lowest level since March 2010 and some 27% below the recent peak in January 2012.
Outlook. Seasonal scrap price trends have yet to play out this year, as prices have actually declined $10/ton over the past three months. Equally surprising, is that scrap prices have fallen during a period in which iron ore prices have jumped 28%. In fact, the domestic prime scrap to iron ore price ratio is now at the lowest level since November 2010 - and some 16.2% below the post-GFC average. Using the current iron ore price and the historical ratio, prime scrap prices would normally be roughly $453/ton, some 19.2% above current levels.
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