Global steel scrap prices could "plummet" in the coming months due to sluggish export demand and pressure from lower-priced iron ore and coke, according to two World Steel Dynamics (WSD) analysts.

"We believe the price of scrap in the next four to five months can drop by $50 per tonne," Peter F. Marcus said at the Steel Success Strategies XXIX conference in New York sponsored by Steel First sister title AMM and WSD.

Marcus and Karlis M. Kirsis, managing partners at WSD, cited a number of "pricing anomalies" – inconsistent relationships between steel and related products – they maintain are "not sustainable."

One of these is the "huge steel scrap premium" over iron ore and coking coal that has resulted in a major price disadvantage for mini-mills. "A mini sheet mill in the US has a cost of $575 per ton, with lower-cost integrated mills just below $500 per ton" for hot-rolled bands, Marcus said.

Moreover, they pointed out that export offer prices by iron-ore-based Chinese mills for reinforcing bar and wire rod – at $450 and $485 per tonne, respectively – are lower than the approximately $560 per tonne that scrap-dependent rebar and rod mills in other exporting countries, such as Turkey and South Korea, need to break even.

Marcus and Kirsis estimated that the cost of iron ore and coke delivered to Chinese steelmakers’ blast furnaces is about $247 per tonne, approximately $120 per tonne less than the US shredded scrap price.

They noted that scrap exports from the United States and Japan are down this year.

Marcus and Kirsis also pointed to an "inexorable" rise in China’s reservoir of obsolete scrap that’s expected to increase from 64 million tonnes in 2013 to 99 million tonnes in 2017.

Another anomaly, they said, is a slab price of about $535 per tonne delivered to the Far East that’s only about $10 per tonne less than the current price for hot-rolled coil fob port of export, resulting in independent hot-strip mills being "disintermediated" – or driven out of the supply chain.

This report was first published by American Metal Market