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April scrap prices reverse course falling 5% according to Steel Market Intelligence

April scrap prices reverse course falling 5% according to Steel Market Intelligence

April scrap prices pare march gains
According to just-published data from American Metal Market (AMM), April prime scrap declined $21 (or 5.0%) to $402/ton and obsolete scrap fell $22/ton (or 5.3%) to $390/ton. We believe the main drivers of declining scrap prices this month were dismal export demand and reduced domestic steel production on the back of weak sheet orders and a delayed spring construction season. Prime scrap prices and iron ore prices moved in tandem over the past month, with the prime scrap to iron ore ratio remaining unchanged at 2.81 - some 3.5% below the post-GFC average.

Forecast: domestic sheet prices declining; bottom likely near
After gaining some $20/ton (or 3.3%) in the weeks following a round of $50/ton sheet price hikes by domestic mills in late February, SBB's weekly HRC price assessment has fallen back to pre-hike levels over the past few weeks as buyers responded to expectations of weaker scrap prices, which ultimately came to fruition. We do not believe sheet prices have much further to fall however, as the delayed spring construction season is likely to ramp up in the near term and the domestic HRC price premium to foreign has declined to 5%, the lowest since last October and below the norm of 7%.

Forecast: long product prices may fall
With domestic scrap prices falling $22/ton and March long product imports rising, we believe domestic mills will reduce transaction prices effective immediately by roughly $10-15/ton. While global long product price weakness is making the US market a more attractive destination for foreign material, we believe domestics will still try to raise base prices - theoretically expanding metal margins - due to the likelihood of increased construction activity in the very near term and the fact that mills were unable to pass the full $35/ton scrap price increase along last month, raising steel prices by $25/ton.

Forecast: plate prices likely to stabilize
After a 14-month free-fall that left domestic plate prices some 28% (or $280/ton) below peak January 2012 levels, spot plate prices have finally shown some upward movement (+2.1% or $15/ton) following price hikes of some $60/ton by domestic producers.While the decline in scrap is likely to prevent any further upward momentum in the near term, we suspect that the sharp drop in March plate imports as well as the probable uptick in demand from increased construction activity will be supportive of prices at current levels.

Outlook
We suspect that scrap prices will remain range-bound (+/- $10-20) in the near term as we believe that increased scrap flows and scrap generation - through increased manufacturing activity - will be offset by increased steel demand as construction activity – though delayed – ramps up.

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