Schnitzer Steel (Nasdaq:SCHN) has surged on the news UBS (NYSE:UBS) upgraded them from "Neutral" to "Buy," based on scrap metal prices rising.
In a note to clients, UBS said this:
"We conducted channel checks on Monday, speaking with five scrap dealers and other sources who confirmed market conditions had begun to improve. Most cited higher offers of $10 to $20/[ton] of late, while some said price levels could rise as much as $50/[ton] in the next 30 days. We think August scrap prices rise $10-$20/[ton month-over-month]. Shredded grades were cited back at $315/t and No 1 heavy melt was quoted at $280/[ton] from levels as low as $230/[ton] in the past month but still down from a peak $400/[ton] in April. Scrap contacts said their supplies, or flows to their yards, were slim and overseas demand had improved, with several citing exports to India and Turkey in recent days."
Some believe scrap metal prices are an early indicator of inevitable market recovery, but that remains to be seen. Alcoa (NYSE:AA) also had some of this in their recent earnings report as well, but it still comes down to demand, and that's going to be the final say in the matter, not necessarily a possible temporary increase in prices.
Schnitzer was up by just under 6 percent as of 12:40 PM EDT.