As we have now entered week six of rising domestic flat-rolled steel product pricing, the market seems poised for further increases. Current domestic flat-rolled steel pricing remains below domestic mill published pricing, signaling room for further growth.

Domestic finished steel prices got an additional bump last week in the form of higher scrap pricing. Midwest prime scrap pricing turned higher, climbing for the first time since March, and climbing to $300/gt for the first time since May. 

One of the key factors pushing scrap pricing higher in August was the end of the domestic mill de-stocking period. As finished steel pricing continued to slide, domestic suppliers continued to lean out their costs, which for scrap, took the form of low buying activity. This lower buying activity has dominated the scrap market for the better part of the year.

As finished steel pricing continues to climb, increased order activity and extended lead times will follow. This increased order activity, especially from the EAF sheet mills, helped to spur buying activity this month. This increased appetite, combined with a firmer imported pig iron pricing situation and an outage at Nucor’s DRI facility, left few alternatives for producers. 

Typically, US prime scrap pricing trades at a $15/mt premium to import pig iron pricing. That spread is currently backwards, as scrap pricing was trading at a $70/mt deficit before the recent increase.

Seasonal slowdowns from key OEM producers, mainly auto, have also helped to firm scrap pricing. The seasonal slowdown in production leads to lower amounts of scrap generation, typically pushing prices higher.

Even after the bump in August scrap pricing, the current hot-rolled coil-to-scrap spread of $300/t, is well below the two-plus year average of $345/t.

Now that the scrap pricing environment has reversed course and pushed higher in August, early expectations are for a further $10-$20 increase in pricing for September. Further increases in scrap pricing should give domestic finished steel producers strength for another round of price increases.