Ferrous Department

ON THE FENCE

The phrase "buyer’s remorse" may be more commonly associated with the purchase of a luxury item, but it also seems to apply to steel mill buyers who purchased scrap at prices greater than $200 per ton.

Scrap dealers reported a noticeable and worrisome hike in the number of downgrades and rejections at the hands of steel mills in May, suspecting that buyers who bought ferrous scrap at or near its price peak were looking to bring down their average cost per ton of raw materials.

The tactic would seem to indicate that mills feel they have regained the upper hand in buy-sell negotiations, though their grip could be tenuous and short-lived.

Steel mill capacity utilization rates in North America remain healthy, as auto sales, the building industry and other manufacturing sectors experience a mild recovery. According to statistics collected by the American Iron and Steel Institute (AISI), Washington, steel output in the U.S. is up by some 1.5 million tons in the first five months of 2004 compared to 2003. The year-to-date capability utilization rate at U.S. mills through May is 90.4 percent.

After several months of sustained, strong buying, Chinese steelmakers have pulled back on their purchases for several reasons. Factors have included a government-imposed cooling in steel production, reduced electricity availability and the willingness of Chinese steelmakers to work through their scrap inventories, sitting out the North American ferrous scrap market while it was at its peak price.

But Chinese buying may resume. One East Coast recycler reports that his Chinese brokerage contacts are making new inquiries into scrap pricing and availability after having dropped out of the market in April and May.