Raw materials costs are boosting sheet steel prices

U.S. scrap prices are close to $400/gross ton

By Tom Stundza -- Purchasing, 1/9/2008 10:38:00 AM

Steel scrap prices have erupted by $55/gross ton to $325 this week in the Midwest with scrap market insiders seeing another $70 increase to $395 in coming days. Supply has tightened because of reduced midwinter supply and stronger-than-expected domestic and global demand.

Upshot: Hot-rolled steel sheet prices have jumped from an average $544 in December to $565 this month and $579 for February deliveries. March order books aren’t yet open but some service center-based buyers expect transaction prices around $590-$600. (CIBC Capital Markets says a price increase announcement has been made by ArcelorMittal for March delivery of hot-rolled sheet at $640/ton.) In the same vein, cold-rolled sheet has jumped from $624 in December to $665 this month and February with buyers saying the mills looking to boost March to $680-$690.

Scrap prices were expected to jump in January because strong global demand and a weaker U.S. dollar are boosting exports. However, few observers forecast that the prices paid for Chrysler’s auto-factory bundles would rise by a record $95/gross ton in sales that closed late last week, bringing the January price to $393 from $298 in December. “While the factory bundle price is more volatile relative to other grades of scrap, these auctions are highly visible, and the bundle trend sets the tone for other types of scrap,” writes independent market analyst Michelle Applebaum.

In a note to clients she writes: “The dramatic uptick (in auto bundles) is due to limited availability of industrial scrap as domestic automakers shut down an unusual number of operations in December, coupled with strong overseas demand–-particularly from Turkey, which has a pattern of on-again/off-again purchasing--is helping to exacerbate the volatility in scrap prices.”

The key implication of the scrap price increase is that steel prices, already set to rise, will accelerate faster than expected. Applebaum says she believes transaction prices for long products and plate—made primarily at scrap-fed mini-mills—will increase quickly while sheet price increases “will lag somewhat, but should catch up in later months as we head into the seasonally strongest period of sheet orders in February-May.”

Adding pressure to the sheet pricing increase is last weekend’s breakout at the "B" blast furnace at Severstal North America in Dearborn, Mich., which could idle the steelmaker's ironmaking furnaces for a month, reducing the plant’s molten iron production by 1,800 tons/day.

Like what you see?
This news item came from our Price + Supply Alert e-newsletter. If you would like to subscribe to this free weekly e-newsletter, CLICK HERE.