Steel scrap prices to recover this year - analyst

LONDON (Reuters) - Steel scrap prices are likely to rebound after a sharp fall in the past couple of months as producers substitute to take advantage of lower prices, a conference heard on Monday.

"Steel scrap is now trading well below pig iron and direct reduced iron (DRI) prices," said Jim Lennon, executive director at commodities research at Macquarie Bank at the LME metals seminar.

"Integrated mills will start to use more steel scrap. They will find scrap is the cheapest raw material they could use," he said, adding this demand would push prices higher.

Booming steel demand in the first half of the year pushed scrap prices up to around $700 a tonne in June. But, with a summer construction lull and a deepening financial crisis, prices have come off to around $300 per tonne.

Lennon said prices were likely to move back to above $400 per tonne before the end of the year from $300 now.

Steel producers either use scrap or different forms of iron ore for production. DRI contains more iron than pig iron and can be used by electric furnaces of mini steel mills.

"Rising scrap prices will eventually push billet and rebar prices higher in the short term," Lennon said. Billet and rebar are semi-finished forms of long steel, mainly used in construction.

On the London Metal Exchange (LME), the price of billet has collapsed in the past couple of months from above $1,250 per tonne in late June to below $400 this week.