June 23, 2022

Spot ferrous scrap prices are off 20% since March, and many expect more weakness. American steel and ferrous scrap markets “seem to be heading into the summer with reduced momentum,” according to Recycling Today. According to Kallanish Commodities, a reduced “buying appetite” by Turkish mills, cheaper Russian billet, a weakening Chinese steel market, and overall bearish industry sentiment are to blame for lower American scrap prices. Shredded steel scrap prices have already tumbled this year. In its monthly index update released on Monday, the Raw Material Data Aggregation Service confirmed that spot shredded scrap prices are down from $604/T in March to $481/T in June. Some scrap market participants remain bearish, as one anonymous steel supplier quoted by Kallanish Commodities on Monday stated “All grades are likely to fall. I am having difficulties in foreseeing a recovery in the near future.” Kallanish itself echoed similar comments, proclaiming “US scrap market conditions are pointing to further price falls.”

Prompt month (July) CME MW Busheling Fe Scrap last traded at $520/gross ton (7:00 AM CST), down over 40% from the late-March highs. Even though some players in the steel industry are predicting lower scrap prices, this could be a good time for busheling scrap buyers to hedge a small portion of their future needs via swaps while prices are already depressed. This will help a scrap steel consumer, such as a steel mill, ensure a fixed raw materials cost. This recent price drop provides a better opportunity for scrap consumers to hedge future needs than they had a mere three months ago. If prices drop further, a consumer can consider additional hedges. The CME MW Busheling Fe Scrap market is thinly traded, so we would suggest strategically placed limit orders. Using swaps can help guard against a potential increase in scrap input costs. Such positions are standard for consumer hedging, but they can result in opportunity costs or cash costs if metal prices decline. Please note there is no options market for CME MW Busheling Fe Scrap. Please contact AEGIS for specific strategies that fit your operations. (6/23/2022)

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