Page 44 from: June / July 2008

44 June/July 2008

m a r k e t a n a l y s i s By Alfred Nijkerk

Have ferrous scrap prices reached a ceiling?
Scrap prices achieved record highs in May, prompting desperate
attempts among Turkish mills in particular to cut prices by at least
US$ 20 per tonne to below US$ 720 delivered. The US Composite
price for No 1 scrap also posted a new record last month, hitting
US$ 519.17 per long ton delivered, before falling again to below
US$ 500 per long ton in June. Prices of 80/20 scrap shipped from
the US West Coast to South East Asia have surged beyond
US$ 750 per tonne cfr South Korea, Taiwan or China. In the
final week of May, fob Rotterdam prices had stabilised at:
US$ 650 per tonne for standard quality 80/20 HMS I/II scrap;
US$ 660 per tonne for shredded; and US$ 635 per tonne for
the 70/30 HMS I/II mix.

Ferrous
Closed: June 13 2008

‘It’s going up US$ 10 every day and we can’t keep pace with it,’ a
major scrap trader told his steel mill
customers in May. But the prices of
many steel products jumped US$ 50 to
100 per tonne during the same period.
Europe’s scrap exporters are continuing
to suffer at the hands of a weak US
dollar and of higher freight rates. For
example, shipment of 20 000 tonnes of
scrap from Rotterdam to Turkey cost

more than US$ 65 per tonne in April;
and from the US East Coast to the
same destination, the cost was more
than US$ 80.
There is, in fact, a real shortage of
scrap now that pig iron and DRI/HBI
also appear to be scarce and that
many mills are claiming to be sold out
until the third quarter. More countries
have imposed levies on exports of
these commodities or have even
banned overseas shipments – India, for
instance – in order to protect their
domestic markets. Some countries
such as Saudi Arabia have limited or
forbidden exports of new steel.
Steel mills association Eurofer fore-
sees an EU deficit of 25 million tonnes
of new steel by the end of July, attrib-
uting this to a bottleneck in the supply
of raw materials so far this year. With
the iron ore supply shortfall estimated
at no less than 160 million tonnes
for this year, it is not surprising that
so many mills – both integrated and
electric arc – are asking for more
scrap despite high prices which, for
some of the top qualities, appear to
have exceeded US$ 835 per tonne

delivered to mini-mills in inland Italy.
At present, there is an obvious interac-
tion between ever-rising oil and steel
prices. The latter have risen on the back
of higher oil and raw material prices
but, for their part, oil companies are
claiming that they have been forced to
increase crude and refined oil prices
owing to the rising cost of steel, alloy
steel and non-ferrous metals used in
new constructions or in the permanent
maintenance of oil production facilities.

Who’s to blame for the
price explosion?

Steel mills have always been quick to
blame the scrap trade when increasing
their prices. However, there is still
validity in the adage ‘scrap is bought,
not sold’, which implies that scrap is
subject more or less continuously to a
buyer’s market. This year’s price boom
began when steel mills raised their
prices for new steel far more steeply
than scrap prices justified at that
moment. The scrap trade followed only
when steel mills started to outbid each
other by offering top prices for scarce
scrap material. In April and May, Arce-

lor Mittal and Nucor implemented
‘material surcharges’ on new steel in
the USA which were pitched at an
unbelievable US$ 250 per tonne.
At present, the scrap trade may be
happy with current prices which have
surged beyond US$ 700 per tonne
and, in some cases, have even broken
through the US$ 800 barrier. However,
they are encountering ever greater
problems in terms of financing car-
goes, with a normal transatlantic ship-
ment of 30 000 tonnes costing US$
20 million or more. They are also faced
with the difficulties of stocking the
material and preventing thefts which
are increasing by the day.
The constant increase in scrap prices is
illustrated by the following review of
this year’s fob Rotterdam prices for a
tonne of shredded scrap:

January US$ 350-400
February US$ 400-415
March US$ 435-445
April US$ 510-520
May US$ 630-670
June US$ 670-700

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