Ferrous Scrap

Ferrous scrap prices are at historical lows due to the strength of the U.S. dollar, weakening export opportunities, and lower melt rates at domestic steel producers. The strength of the U.S. dollar allows international customers to shop for more cost-effective raw materials in other countries. Metal purchasers have the option to buy steel billets instead of melting scrap because it is cheaper to buy a semi-finished product. Shredded carbon steel scrap pricing has been declining since April 2014, falling from $400 per gross ton to $248 per gross ton in April 2015.

The top official of David J. Joseph Co., a wholly-owned subsidiary of Nucor Corp., and the largest broker of ferrous scrap, noted that ferrous scrap exports declined 17.1% in 2014 to 15.3 million gross tons. There has been a continuing decline in ferrous scrap exports since 2009, when the U.S. exported 22.4 million gross tons.  Last year, the U.S. shipped 785,000 gross tons to China, down from 4.2 million tons in 2011.

Eric Klenz, an industry analyst with KeyBanc Capital Markets, expects an increase in distressed mergers and acquisitions (M&A) in the second quarter of 2015. He noted that ferrous scrap processors, smaller steel services centers, and oil- and gas-related businesses, including OCTG producers, could see the most distressed M&A activity. On April 13, 2015, Lee Steel Corp., a 60-year-old family-owned company with steel service centers in Michigan, filed for Chapter 11 bankruptcy.

Iron Ore

Readily available iron ore for direct-reduced iron plants is also expected to keep downward pressure on ferrous scrap pricing. Nucor was expected to restart its 2.5 million-ton-per-year DRI plant in St. James Parish, Louisiana, this spring after a major equipment failure in November 2014.

Iron ore prices have dropped 30% since the start of January to a low of U.S.$35 per metric ton. Australia’s biggest export is having an adverse impact on the government’s 2015-2016 budget. As recently as December, the conservative government had forecast a budget surplus based on a price of U.S. $60 per metric ton. The pricing slump has caused layoffs in the thousands among Australia’s mining companies.

Met Coal

There is no substitute for metallurgical “coking” coal (met coal) in the steelmaking process; industry analysts therefore have a longer outlook for this market. After a steep decline in met coal prices in 2013, prices in 2014, FOB Australia, averaged between U.S.$106 and U.S. $117 per metric ton. For 2015, price forecasts for low volatile premium hard coking coal average between U.S.$120 and U.S.$125 per metric ton. Both Wood Mackenzie and Haywood Securities agree that supply needs to come out of the marketplace to help met coal prices.

Non-Ferrous Metals

Copper

The COMEX copper cathode grade A spot price average peaked at $3.30 per pound, U.S. Midwest, in July 2014 and has declined each month to average $2.68 per pound in February 2015. The March 2015 average has rebounded slightly, closing at $2.77 per pound.

There are mixed forecasts for copper prices in the second quarter of 2015. According to Seeking Alpha commodities analyst Andrew Hecht, prices are expected to fall below $2.72 per pound and approach record lows of just above $2.42 per pound in the second quarter. Decelerating growth in China, the largest consumer of copper, and economic weakness in Europe are contributing factors. Other commodities analysts are optimistic about copper prices this year, as they believe that China is liquidating copper stockpiles, creating a “fake” oversupply situation, according to John C. Tumazos, a senior analyst with Very Independent Research LLC.

Aluminum

Pricing for aluminum P1020 ingot, delivered U.S. Midwest, has been steadily declining from a November 2014 peak of $1.17 per pound. The March 2015 average closed at $1.00 per pound. Aluminum scrap alloys 1100 and 3003 have followed the same downward trend, with November 2014 averages of $1.00 per pound, delivered U.S. Midwest, slipping to $0.82 per pound in March 2015.

The market has also seen a drop in the Midwest aluminum premium (the cost of freight and handling to move aluminum from LME warehouses to the Midwest) as prices in early April were in the range of 18.25 cents to 18.75 cents per pound, down from a record high of 24.00 to 24.25 cents per pound in mid-January. Alcoa CEO Klaus Kleinfeld recently told analysts that the drop in Midwest premiums could be attributed to an increase in semi-fabricated aluminum exported from China only to be melted down by buyers and used as primary aluminum to avoid paying high import taxes. Mr. Kleinfeld indicated that this is likely a very limited phenomenon.

Great American Group (GA) has an extensive record of metals inventory valuations for companies throughout the entire metal supply chain, including foreign and domestic non-ferrous and ferrous metal producing mills; metal converters that produce pipe and tube; metal fabricators; metal service centers /processors and distributors; and scrap yards and recyclers.