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Increase All the Way Out

 Scrap prices in global market has been growing for sixth months  at a run.  Since the beginning of Nov., when the increase started, scrap prices  increased  60-70 %.  In the first decade of Apr. the prices for the US HMS № 1&2 to Turkey reached  $460-468 per ton CFR and in South-East Asian the traders offered it at $480-500 per ton CFR. In the USA Apr. quotations increased averagely by  $30-50 per ton as compared with March. Packed  industrial scrap price  exceeded  $500 per a long ton (1016 kg) incl. delivery, shredded scrap price reached $415-430 per ton, and HMS № 1 scrap price approached $400 per a long ton.  HMS scrap price  in European market also increased to $395-415 per ton incl. delivery. Such prices existed last time in Sep.  2008.

After the boom in early March the increase in global scrap market  slowed down by the end of the month, that is why many participants of the market believe that the growth is coming to an end and the fall should be expected soon.  Many companies cut raw materials purchases concerning that the situation of 2008, when they were stuck in  decreasing market with large raw materials stockpiles,  can repeat. However, these expectations are unlikely to come true. By all appearances, scrap price can increase a little, but it will not exceed  $500 per ton in the nearest future (HMS № 1).

Despite the spring time, good conditions for old scrap collecting, and the rally in  metal processing sector,  scrap  supply  volume does not grow fast enough. The US traders notice that there is more scrap in the market today but not as much as needed. The stockpiles are  almost twice as much as in 2008. Besides there is  the competition between  national metallurgical companies and the export.

During the bigger part of March Turkish companies actively bought the US scrap, since the offers volumes from Russia and EU were insufficient.  The increase in the Middle East long products market, the demand growth, and rebar price increase allowed  Turkish mini-mills to cover raw materials expenses. At that, if  scrap price  with the delivery to Turkey increased in March by  about   $ 100 per ton, rebar price increased by $150 per ton during this time. Although in recent days the regional  rebar market was likely to start weakening, rebar prices can keep at the level  $650-680 per ton FOB. It will allow Turkish companies to buy scrap at $450-500 per ton CFR and to gain the profit.

East Asia market is a little bit more sensitive to  raw materials price level.  There was not such rush as in ME and rebar is cheaper. Some companies in East Asia  complained in  early Apr. that  scrap was too expensive for them. But they should remember that scrap price jump to almost $500 per ton  CFR happened at the absence of Chinese companies in the market.  Long products prices in China grew very slowly. In early Apr. local companies offered rebar at  $620-640 per ton EXW, so that the current prices for imported scrap are very high for them. But this gap is widening.  In recent days Japanese traders announced the appearance of  the interest  from the Chinese buyers  for scrap  purchases resumption in Japan.

The price for other  kinds of raw materials, first of all, iron ore,  affect scrap price. In Apr.  Iron ore price increased for East Asia buyers 85-100% as compared with the contract prices in 2009/2010 financial year. By all appearances the growth will continue in the Q3. Meanwhile the current prices for scrap  in Turkey and East Asia are only by 65-70 % higher than  averagely in 2009 ($270-285 per ton CFR). To keep the parity scrap price should grow a little more.

Scrap prices in global market have approached the peak, but have not reached it yet.  In recent months scrap price is similar to the amount that long products manufacturers can pay for it. If they manage to keep rebar prices at $700 per ton CFR, scrap price will be able to increase more.

Apr 18, 2010 08:40
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