Friday, November 14, 2008    
    
     The scrap industry is notorious for its cyclical nature. But never have prices fallen so far, so fast. Prices for some grades of industrial scrap are down more than $400 a gross ton from 90 days ago and buying and selling activity has come to a virtual halt. Domestic steel mills have shut off the purchasing spigot and there is no indication they will return to the market until after the first of the year. Many scrap dealers buy scrap from manufacturers and fabricators based on a pre-determined formula tied to the American Metal Market (AMM) scrap price index, but several dealers have informed their accounts that, until further notice, prices will be set on a spot basis. Why? Right now there are not even enough sales for the AMM to be able to publish a valid index. The only sliver lining, as one scrap dealer told me this week, is that thefts of scrap metal have ground to a virtual halt. Who says thieves don't know what's going on in their markets? 
    Actually there is one more bit of good news for scrap dealers. As mentioned last week, Turkey seems to have re-entered the market in search of U.S. exported scrap. Reports are that Turkish steel mills have bought six to seven vessels of U.S. scrap in the past couple of weeks. Scrap dealers are not getting too excited though as most feel the Turkish mills are just taking advantage of the low scrap prices and will pull back out of the market anytime.
    Steel production cuts at the mill level, bottom-of-the-barrel scrap prices and sagging consumer confidence continue to pull hot-rolled band prices downward. Hot band prices in the United States and overseas have fell between 7.4% and 10.3% over the last two weeks according to the latest report from SteelBenchMarker. U.S. hot band prices are now at $798 a ton f.o.b. the mill according to the latest report. This was the seventh consecutive drop and is down 9.9% from two weeks ago and 33.7% from the $1203 high set in July. It's important to remember though that the latest $798 price is still 21.1% higher than the $659 a ton tag hot band was at on January 14^th of this year.
    Nucor Cold Finished announced this week that the Raw Material Surcharge (RMS) will be zeroed in December, constituting a $6.25 cwt decrease in cold finished and alloy bar pricing.
    Mills continue to hope that by curtailing production they will be able to hold the line on pricing. While this approach may be working to some extent, they are still being forced to lower prices in recognition of plummeting scrap prices. But now that scrap prices can't really go any lower, can they maintain pricing? The fact they are even attempting to is certainly counter to the way the mills used to operate. The consolidation the steel mills have undergone over the last few years probably has contributed to this change in thinking. During downturns in the past, there were always maverick mills that insisted on continuing to produce at peak levels just to generate cash.
    More steel mills production cuts were announced this week as AK Steel said they will be idling their Mansfield, Ohio operation and most of it's Ashland, KY operations in coming weeks. Republic Engineered Steel, a producer of hot-rolled and cold-finished bar products, said it will shut down its Lorain, Ohio melt shop temporarily, resulting in the lay-off of 429 workers.
(See Market Report-next column)