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February Steel Scrap Prices Go Sideways

Temporary weakness in overseas demand from Turkey and Asia has slowed the recent surge in scrap prices.

Scrap Prices Held Relatively Steady.

American Metal Market's

February prices for No. 1 busheling (prime) rose $10 to $400 a ton (up 2.6%) and shredded scrap (obsolete) fell $5 to $345 a ton (down 1.4%). Prices of both grades remain at or near the highest levels we've seen since pre-recession 2008 and are roughly double the lows posted in November 2008.

Overseas Demand Wanes.

We believe temporary weakness in overseas demand from Turkey and Asia has slowed the recent surge in scrap prices. We suspect that as scrap prices have approached billet pricing, there's been some reluctance to turn "gold into straw" combined with a tapering off in demand in China ahead of the holidays. However, tight supply is keeping scrap prices from declining.

Scrap Flows Improving.

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Another factor halting the surge in scrap prices, in our view, is an increase in domestic scrap supply on the back of increased automotive production and improving weather, which have improved flows of obsolete grades into scrapyards. Still, scrap inventories at the mills are low and capacity utilization has risen from 61% at the end of last month to 66% this week. We believe the continued domestic demand for scrap will provide price support.

Long Products May Hold Steady.

We think steelmakers will try to hold the line on rebar prices for March shipments after raising prices $125 in the past two months. Surcharges have become truly irrelevant to the beam market in which nearly evaporated demand -- and modestly rising imports -- are calling the pricing shots these days.

Sheet and Plate Prices Likely to Rise.

We believe domestic sheet and plate prices could see further increases as demand is rising on stronger orders for automotive and appliances. However, rising inventories and mill restarts could put some downward pressure in the near term.

Michelle Galanter Applebaum spent more than 20 years as a managing director at Salomon Brothers in New York and was the No. 1-rated steel analyst from 1988-2003, according to Institutional Investor magazine. In 2003, Ms. Applebaum formed Steel Market Intelligence, a 5-person Chicago-based equity research boutique providing advisory services to institutional investors. In addition to publishing 10-15 reports/week, Ms. Applebaum sponsors numerous CEO-level meetings for her investor clients during the year. She is regularly quoted on Bloomberg, Dow Jones, The New York Times and makes frequent appearances on CNBC and other news programs. Ms. Applebaum lives near Chicago with her husband, visiting children and 2 dogs.