Mike Marley’s Shredded Power #119

Dealers are headed into the brief and final week of October and most are focused on getting all their tonnage delivered to the mills before the month ends on Tuesday. If anything, said a veteran Midwest trader, the main goal is to get all the prime industrial scrap delivered as soon as possible.  Many are worried that if they face cancellations, it will be mainly industrial scrap and not the obsolete grades like shredded scrap and heavy melt.

The sheet steel mills, particularly those in the North and in the upper Midwest, are not having many problems obtaining enough bundles and busheling.  Prices for these grades dropped by as much as $40 per ton this month while the offers for the obsolete scrap were off by between $25 and $30 per ton.  Also, in a counterintuitive move, the domestic mills boosted base prices for their sheet products by $40 per ton at the same time as they were cutting industrial scrap prices by that amount!  Usually, sheet mills raise scrap prices at the same time as they are hiking steel prices because of the stronger demand.

They may be able to push these disparate pricing moves because of an industrial scrap surplus.  There are more than a few explanations for this excess.  First, integrated steelmakers are buying less industrial scrap. There is still a larger than normal price spread between busheling and shredded scrap in key steel making and consuming regions like Detroit and Chicago.  On the average, it’s about a $70 per ton premium versus the traditional $20 per ton premium in the past.  Consequently, some integrated mills are using more shredded, and plate and structural scrap.  The mills’ scrap buyers and brokers are encouraging the melters to make such switches.

Forget the hurricanes, industrial steel scrap from Canada is flooding the U.S.

Second, because integrated mills in Canada are consuming fewer bundles and busheling, more of that industrial steel scrap is coming across the border. Nucor Corp.’s and Steel Dynamics Industries’ (SDI) sheet mills in Indiana and other sheet mills and prime scrap consumers elsewhere in the U.S., are gobbling it up. Gerdau, according to some scrap industry sources, operates a specialty bar mill in the Detroit area and has access to plenty of busheling there.  Yet, several others said the steelmaker is bringing more prime scrap from its Canadian scrap yards to its U.S. mill.

In August, the latest month for which the U.S. Commerce Department figures are available, imports of ferrous scrap from Canada rose to almost 220,000 tonnes, a 45% gain from the prior month.  Bundles and busheling accounted for the largest share of the increase.

Seen from another perspective, busheling consumers in the U.S. are not demanding as much from the Detroit area scrap yards that supply busheling to the North Star Bluescope LLC’s mill in Delta, Ohio. That EAF-based sheet mill is the U.S. unit of Bluescope, a Melbourne, Australia-based flat-rolled steelmaker.  Its U.S. mill is in a small town in northwestern Ohio, about 70 miles southwest of Detroit. Because it is a major consumer of busheling in that region, often as much as 100,000 gross tons per month, that mill plays a key role in setting industrial steel scrap prices, not only in Detroit but in other regions as well.

It is, in other words, the inheritor of the factory bundles pricing mantle. Its prices are often the first quoted each month.  They are what the auto industry’s factory bundles price were in the past. The domestic automakers used to offer the next month’s output of bundles from their stamping plants in an auction. This usually occurred five business days before the end of the current month.  The average per ton price increase or decrease would serve as the likely price moves for all the industrial steel scrap prices throughout the country and often as the basis for obsolete scrap price changes, too.

Being the pricing pacesetter may not be a role that North Star BlueScope cherishes, yet many other mills in that region and elsewhere wait until they have been told what Delta paid.  Then, they price their scrap purchases accordingly.  Perhaps because no other mill was large enough, consumed enough industrial steel scrap and was close enough to Detroit, the nation’s largest wellspring of bundles and busheling, this sheet mill has become the unofficial market maker for ferrous scrap prices.

Competing for prime scrap has often been a problem for Nucor and SDI, the two largest EAF-based sheet steelmakers. If they wanted industrial scrap from Detroit, they had to offer a competitive price to take scrap away from the Detroit area mills.  That usually meant matching prices that North Star Bluescope was offering dealers, but on a F.O.B. at the dealers' yards basis. That provided dealers with an incentive to not sell as much scrap to their rival in Delta and other Detroit area mills. The dealers could pocket the freight costs because the outlying mills provided their own or leased railcars; and thus, were able to absorb those costs.

In recent months, because of the weaker Canadian demand for busheling and bundles, some U.S. mills have been buying more busheling and bundles from big scrap yards in Canada. The result: North Star BlueScope and other mills in the Detroit are not facing as much competition for prime scrap. That may have been the basis for the decision to cut busheling and bundles prices by $40 per ton, whereas the offers for shredded scrap and cut grades were trimmed by only $30 per ton.

Dealers in the Detroit area have plenty of scrap to offer each month, but they cannot afford to keep too much off the market and hope that prices will rise in a month or two. Industrial scrap is not price sensitive like shredded scrap.  Thousands of tons keep rolling out of the stamping plants each month as long as new cars are selling at a strong pace.  It doesn’t matter if the mill-delivered price is $8 or $800 per ton for busheling.

Consequently, there could be yet another cut in the busheling and bundles prices in November. It may not be as steep as this month’s $40-per-ton reduction. But, said a Detroit area trader, there is also the likelihood that busheling and bundles prices will continue to decline in December and possibly in January if excess Canadian scrap continues to flow into the U.S. in those months.

If busheling prices sink and shredded prices are unchanged, he said, the ferrous scrap market soon could see a return of the traditional busheling premium of, say, $20 per ton over domestic shredded scrap prices.  That could encourage the integrated mills to use more industrial scrap instead of shredded scrap.  If busheling prices drop below shredded, like they did two years ago, rebar makers and structural steel producers may shift their melt mix and use busheling.  That could put a floor under busheling and bundles prices and return scrap consumption to the traditional pattern.

Busheling could continue to slide while shredded and heavy melt are unchanged.

An entirely separate scenario is playing out for shredded scrap and the other obsolete grades. Prices paid by the Turkish steelmakers and other offshore buyers have stabilized in recent weeks.  They are paying U.S. exporters about $304 per tonne for bulk cargoes of mainly 80/20 heavy melt and $309 per tonne for the shredded scrap portion of those shipments.  If anything, the bulk cargo business from Turkey has gotten stronger and the overseas prices have not fallen as much as those in the domestic U.S. scrap market.

There is also higher demand and prices for containerized shredded scrap on the U.S. East and Gulf Coasts. Much of that material goes to steelmakers in India, Pakistan and elsewhere in southern and southeast Asia.  Dealers can get as much as $285-290 per tonne F.O.B. for shredded in a bulk cargo carrier and $300 per tonne for containers loaded with shredded and dropped off at the docks.

That's better than they can get from domestic mills.  Those are paying $270 per gross ton for shredded delivered to their mills in Detroit and Indiana and less at some mills in the Chicago area and in the South. The exporters and other scrap suppliers on the East Coast didn’t offer the inland mills much scrap this month and probably won’t have much for them next month.  That doesn’t trouble many of the Midwest brokers.

One Midwest trader said there are ample supplies of shredded scrap at some mills there and the biggest scrap users in the region won’t have to pay more or reach out very far to get what they need. “Shredded and cut scrap prices probably won’t go up next month, but they probably won’t go down either,” he said.  The average Midwest mill-delivered price as measured by WSD’s Steel Benchmarker was $275 per gross ton this month.

By comparison, smaller mills on the U.S. Coast and those in the Southeast that buy from coastal shredders and exporters in the New York, Philadelphia and Baltimore areas had to pay $290 per ton and higher to keep shredded from going overseas. They could face bigger price challenges in November.

An East Coast trader said mills may have to wait for several months to see much impact from the scrap generated because of the damage from Hurricanes Harvey and Irma. Much of the metals waste stream created by the storms involves cars. Many of the damaged vehicles are newer, late-model cars and auto recyclers will hold into those longer than they will the older wrecks.

Scrap flows into dealers’ yards and shredders has not declined as much as some had anticipated, said a Chicago area trader.  Some suppliers may be trying to unload more material now because they are worried about yet another cut in dealers’ buying prices next month.  Or some may simply be unloading inventory before the colder winter weather arrives and impacts scrap processing and transport.

Like several other dealers, he doesn’t expect much movement in the obsolete scrap prices next month.  Obsolete supply will tighten up and some mills may build inventories ahead of the coming winter.  If that’s the case, he added, shredded and heavy melt prices may be unchanged for the rest of the year unless a spike in export sales drives up both demand and prices.

Domestic raw steel production isn’t providing much indication of a potential rise in steel output.  Raw steel production sagged to 1,731,000 net tons last week, the American Iron and Steel Institute said, a 0.7% decline from the previous week’s output of 1,744,000 tons. The industry’s capability utilization rate was 74.3%, off by 0.5% from the prior week.

Shredded Scrap Thermometer: Shredded scrap’s price floor.

Shredded scrap is a price-sensitive commodity regardless of whether it is being sold to a domestic steel mill or shipped overseas.  Its output and availability can be reduced by cutting the price for shredder feedstock unlike busheling and bundles which have little or no price sensitivity and will still be sent to steel mills’ and dealers’ yards. Other fundamental differences include:

• What dealers pay automakers for busheling is determined by the various price indices.  The index price may rise or fall, but the dealers’ margins to cover freight, processing costs, and profits may be unchanged.  Auto stampers will continue to produce scrap and accept less for it.  Their main task is to make car parts.  What they get for their scrap is a secondary issue.  Suppliers of shredded feedstock operate on a different scale.  If the price drops by $50, $60 or $70 per ton, they’ll offer less material.  Price, in other words, is the main issue.

• Several EAF-based steelmakers also own shredders as a means of assuring supply, but that’s no guarantee.  Most integrated mills don’t own shredders. If they want more shredded, they boost their scrap buying prices above what the mini-mill owned shredders are paying and buy more shredded from the mini-mills’ rivals.

• Also, for integrated mills, a $20 or $30 per ton hike in the shredded prices is only a $2 or $3 per ton increase in their raw material costs since they use only 10% scrap with their blast furnace iron. For the EAF mill which may be using as much as 50% shredded as part of its melt mix, that’s a steeper cost increase.

• Competition for shredded scrap doesn’t involve only regional markets.  Shredded is a worldwide commodity.  The tons that a domestic steelmaker doesn’t buy today because it considered the price to be too high, could be in a container and enroute to mills in India or Vietnam later this week.

• Shredders frequently complain that the price cuts lower the feedstock flows into their yards and that price increases don’t refill the supply pipeline as rapidly as some expect.  Wreckers and smaller scrap dealers will continue to hold back junked cars and other shreddables if they believe prices will rise higher in the next month or two.

When EAF-based steelmakers invaded other markets like sheet, they knew that they would have to play wild cards like having access to scrap alternatives like pig iron and direct-reduced iron and the ability to take a more active role in the scrap processing and trading. Such steps are needed to ensure a steady supply of metallics when scrap is tight.

• All four of the largest EAF-based steelmaker in the U.S. have substantial roles in the scrap industry, whether it was through the acquisition of large scrap companies like David J. Joseph Co. or OmniSource Corp. Others like Commercials Metals Corp. got into the game much earlier through the purchases of small feeder yards that would supply their own mills and captive shredders but also made them knowledgeable scrap suppliers to several of their steelmaking rivals.

• The U.S. is the world’s largest scrap exporter and was often regarded solely as a supplier to the scrap-poor less developed world.  But several U.S. EAF-based mills have rewritten that script. They have tapped European and Japanese suppliers for shredded scrap and bundles, in part, to use those offshore buys as leverage when bargaining with domestic scrap dealers.

• Though the picture has been mixed on the use of alternative materials like direct-reduced iron and hot-briquetted iron and pig iron, these materials provide an effective means to dilute the contaminants in scrap.


The Nasdaq Midwest US shredded steel scrap index futures is expected to launch by year end. The contract will trade in 10 gross ton units with the prices settled on the 11
th day of each month. For additional information about shredded futures trading, contact John Conheeney at WSEM. His phone number is 201-503-0922 and his email is jconheeney@wsemgroup.com