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Analysis: Scrap suppliers watching strike against GM, but see no October market impact

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Analysis: Scrap suppliers watching strike against GM, but see no October market impact

New York — The longer the strike against General Motors continues the greater the impact on ferrous prime scrap supply, though weak demand from steel mills in the US remains the main concern of domestic scrap suppliers.

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Now in its fifth day, the strike affects 31 GM factories and 21 other facilities.

"As far as the October scrap market, we're not anticipating a [pricing] shot in the arm as a result of the UAW strike against GM," a US scrap supplier said Friday. "Demand weakness from the mills is the big issue, given leaner output and outages stacking up for the fourth quarter."

GM's assembly plants, like all carmakers and other steel-using manufacturers, such as the metal stampers who supply GM and other automakers, generate considerable tons of high-quality steel scrap known as prime.

"If the strike is prolonged - a month or two - you'd start to see impact at the second- and third-tier generators of prime -- the [metal] stampers, which could result in some prime supply tightness," the supplier said. "But right now, we don't see the strike as a catalyst to drive pricing to sideways; still looking like an October pricing drop."

Precisely how much prime scrap GM and others generate is a closely guarded secret, which also makes any supply-side impact tricky to call.

Still, "GM doesn't generate nearly as much scrap as they did 10-20 years ago," said another US scrap-supplying executive. "So from a scrap supply standpoint the strike is really a non-starter nationally and only marginally affects the regional markets such as Detroit."

He agreed the strike against GM will have no tangible bearing on the October ferrous scrap market.

"If the strike lasts beyond a month, maybe then [there is an impact]," he added. "But in the meantime, [steel mill] shutdowns, inventory destocking, and reduced order books are the culprits."

The second executive said also sees an October price decline on the market horizon.

"I expect ferrous grades to trade down at least $20/lt, and more likely down $30-$40/lt in October," he said. His feeling is that "the big consumers such as SDI and Nucor will protect their yards first and buy the incremental tons from others at lower prices."

The Holy Grail of prime scrap, nonetheless, is exterior automotive sheet and its mirror-like finish.

One form of prime is No. 1 busheling, defined by the Institute for Scrap Recycling Industries (ISRI) as clean steel scrap, not exceeding 12 inches in size; it includes new factory busheling such as sheet clippings, cutouts, stampings and more.

The Platts weekly price assessment of No. 1 Busheling Scrap closed Friday at $280/lt delivered to North American domestic steel mills - its lowest mark in three years.

A little more than a year ago, in July 2018, the price was at a three-year high of $415/lt, reflecting a 33% downturn.

-- Joe Innace, joseph.innace@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com

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