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Steel Scrap Prices Moved Sideways in April

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May. 7 2015, Updated 5:32 p.m. ET

Steel scrap prices

Previously, we discussed the movement in iron ore prices. In this part of the series, we’ll discuss the latest trend in steel scrap prices. Iron ore prices declined considerably since the beginning of 2014. However, scrap prices were sticky for most of last year.

Steel scrap prices tanked by more than 25% in February 2015. This helped mini mills. They were at a competitive disadvantage due to the decline in iron ore and coal prices. Unit production costs for steelmakers using traditional blast furnaces declined by ~$150 per ton on lower input costs.

The US is the biggest exporter of steel scrap. Turkey (TUR) is its biggest market. Scrap exports were impacted negatively as steel demand in Turkey came down. Turkey, like several other countries, is grappling with the flood of steel imports from China (EWZ).

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Prices are steady

The previous chart shows the latest trend in steel scrap prices. As you can see, prices traded sideways in April. However, the impact of lower input costs would be visible in companies’ second quarter earnings—like Steel Dynamics and Nucor. The costs of goods sold for these companies could show a significant decline in the second quarter.

However, the decline in scrap prices negatively impacts the companies’ metal recycling operations. The spread for recycling operations comes down as scrap prices drop. Schnitzer Steel (SCHN) is a leading scrap processor.

The stability in steelmaking raw materials also lends support to steel prices. Steel companies’ profits—like POSCO (PKX) and Companhia Siderurgica Nacional (SID)—are negatively impacted when steel prices decline.

In the next part of this series, we’ll discuss the latest trends in US steel production.

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