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Key takeaways:
Negotiations were continuing for prime ferrous scrap contracts in the US. Market participants were reconsidering, renegotiating and were even willing to walk away from expensive arrangements that were not profitable. Fastmarkets heard this on Friday, October 31. The discussions were at multiple levels and included mills tied to industrial contracts under which they receive revert scrap from the finished steel they supply. It also involved mills that buy from scrap companies using a formal monthly formula and scrap companies which service industrial accounts.
The universal preference was that all parties want to pay less on the buy side for prime scrap in 2026. They aim to rein in premiums which many say have simply got out of hand.
Market participants were working to correct a period of high prices. The focus was on profits before vanity volumes of material.
Part of the psychology that drove prices higher, one prime seller said, was the fear of a looming prime scrap shortage that never materialized.
“Everyone thought, ‘We’re never going to have enough No1 busheling – let’s overcommit on premium prices’,” a second prime seller said. “We overreacted and now it’s correcting. The mills have been getting wiser on the buy side.”
In fact, a Canadian scrap seller said there was at the moment at least 500,000 tons of prime scrap sitting in Canadian yards. This illustrates that the prime shortage never became a reality.
“Some scrap companies have been ‘racing to the bottom’,” the first prime seller said. “Everyone wants to take over [prime scrap] accounts to obtain market share which is top-line growth. However, that does not translate to the bottom line. And the reckoning for this behavior – which is unsustainable – is here.”
Overpaying to secure guaranteed prime tonnage became a trend after 2020.
“[The Covid-19 pandemic] was the first shot where scrap deals went higher,” the first prime seller said. “Mills have now gotten to a point that they are tired of overpaying for material. There is cheaper availability out there on the spot market. The mills have come to a realization that they can buy cheaper. They do not need to actually control tons because you will pay for it in the long run.”
The first prime seller said that the company they work for is slowly but surely locking up more favorable terms.
The value of prime scrap has diminished by nearly half from a peak a few years earlier. “We have been renegotiating constantly, but not all at once, to keep them reasonable,” the first prime seller added.
Fastmarkets most recently assessed the steel scrap No1 busheling, consumer buying price, delivered mill Chicago, at $390 per gross ton on October 9. This compared with an April 2022 peak of $760 per gross ton.
Many companies buy and sell prime scrap off Fastmarkets’ American Metal Market (AMM) settlements, which are the industry benchmark.
In terms of percentage on the higher-side deals, at AMM plus $50 per ton, when No1 busheling was $760 per gross ton, then $50 per ton was 6.58%. At today’s assessment of $390 per gross ton, $50 per gross ton is a 12.82% premium.
A third prime seller said that scrap companies that had locked-up long-term arrangements with mills would face negotiations. These would be based on the steepness of existing premiums paid.
“It is pretty normal for a company getting AMM plus $10 per gross ton, and they will continue to get paid that. However, getting AMM plus $50 per gross ton is stupid, and mills may try to push these lower. I do not get a crazy price,” the third prime seller said.
Mills agreed that prime scrap accounts – No1 busheling and No1 bundles – would be ‘orphaned’ if a favorable deal cannot be agreed.
“Scrap companies are reviewing their industrial scrap contracts. They are looking to lower their formula pricing, or walk away from the account. Some of that is happening right now,” a mill buyer said.
A second mill buyer said that “mills are being aggressive [about renegotiating] because contracts became too rich and too high.”
A third mill buyer said another mill had been buying revert scrap from a company that used its steel. “They are now regretting that decision. They have been paying astronomical prices and can get scrap cheaper from the spot market,” the buyer said.
“We have been overleveraged on contractual obligations,” a fourth mill buyer said. “We have longer-term contracts concluding in the next 2-6 months. These will be negotiated at a significantly lower price.”
A fourth prime seller said that mills “have been competing against themselves.” For example, if a seller received AMM plus $20 per ton and another seller received AMM plus $40 per ton, the second would buy the seller’s scrap at prices up by $20 per ton. They would resell it at prices up by $40 per ton to the mill – and take $20 per ton for little effort.
This market correction reflected a move toward more sustainable pricing and profit realization. The premiums that will finally be decided will become transparent during January trade.
A fifth mill buyer said that the onus was on mills for a while because there was plenty of prime material available. “In the past couple of years,” the buyer said, “there has not been much leverage for the supply side.”
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