Reuters reported that US steel scrap prices are likely to hold at recent sharp gains even if input costs climb as orders will increase only modestly.
Mr Keith Busse CEO of Steel Dynamics Inc said that "You can get to a dangerous point if scrap prices get above current levels. Not only would it be inflationary, and already is to some degree, but it would cause competitive problems for producers, in relation to the global market."
He added that currently, US scrap steel bundles and busheling prices are approaching USD 400 a tonne. Shredded material is in the mid USD 300s a short tonne, which to some customers seems pricey considering it fell below USD 200 a year ago.
Mr Busse said that the industry drew a hard lesson when steel tonnage bought at USD 800 to USD 900 a tonne during the August 2008 peak had to be written off at USD 300 a tonne or less in 2009. He added that "If we were operating at 90% of capacity we would make decent money at those prices. But the scrap market is at a point that even at lower operating rates it can probably make some money."
He said that "We dusted off the crystal ball and from our perspective the end of 2010 doesn't look a lot different than the beginning. Backlog is not that long yet, but I think the momentum is pretty good. The order entry we have every week is pretty healthy, and not backing off. I think that's a major point. You are seeing steady order entry, not peaks and valleys."
Steel Dynamics flat rolled segment has been operating near 100% since July, after a destocking phase went too far. For merchant bars, a commodity grade product, Steel Dynamics has been producing at about 60% of capacity. Specialty bars, on the other hand, have been red hot. Specialty bar quality, or SBQ, used in gears, shafts, axles and suspensions in automobiles, and in industrial capital equipment, aerospace and oil drilling components, are close to being sold out for the quarter at Steel Dynamics.
He said that he thinks destocking is complete in the segment and movement up from the bottom has been very gradual. He added that "I don't see a lot of momentum there. We're certainly not seeing in 2010 that we'll get beyond 40% of our capacity, but we have done a good job cutting costs."