Margin call - Ferrous - Brief Article

Recycling Today, Nov, 2002

Figuring out who along the supply chain--from auto makers through first tier suppliers, steelmakers and then scrap dealers--has a profit margin to work with can be an intriguing exercise.

In the current market, some scrap dealers are speculating that domestic steelmakers, for the first time in a very long time, might be working with a margin that is in their favor.

Steel prices in the U.S. have risen above the historic lows they dwelled at throughout the last several years, and ferrous scrap prices rose, to some extent, along with them.

But dealers see mills refusing to spend very far above the $100 per ton line for scrap, and some suspect they are determined to retain a margin after several fiscal quarters of red ink.

"Looking at the price of what new steel sells for--even bar stock--and you look at what they're paying for scrap, somehow along the way they should be having a pretty nice margin," says one Midwest scrap dealer.

The dealer is somewhat sympathetic, however, acknowledging the rough times domestic mills have been through. "If they don't make money, I don't make money."

Whether they want to pay or not, mills will need the scrap if they maintain a just-in-time inventory system, as many now are.

Pricing

No. 1 Heavy Melt Composite Pricing

(Per gross ton, monthly average)

September       $80.00
October         $73.29
November        $64.97
December        $65.00

January 2002    $69.97
February        $76.58
March           $82.09
April           $92.03
May            $101.53
June           $101.60
July           $101.67
August         $101.67
September      $103.62

Source: American Metal Market

Note: Table made from bar graph.