Mike Marley’s Shredded Power #100

Domestic steelmakers have obtained much of the ferrous scrap they needed this month, including even the seasonally short supplies of industrial steel scrap like bundles and busheling. Abundant shredded scrap and heavy melt, the absence of much offshore demand , and the modest price reductions of about $10 per gross ton for these obsolete grades eased any concerns about the availability of enough steelmaking materials.  Only the on-going lack of rail cars to transport scrap to distant mills troubled both dealers and steel mills more than supply issues.

Prices offered for busheling and bundles were unchanged in all regions except the Southeast. There, reduced steel output and a surplus of imported prime scrap left some mills in a better bargaining position with dealers. Mill buyers and brokers had expected to trim prices by $20 per ton or more, but they ultimately settled for reductions of about $10 per ton off both obsolete and industrial scrap prices.

Elsewhere, concerns about reduced auto production and its impact on the availability of busheling and bundles overshadowed any hopes for lowering those prices. Those fears were missing from the obsolete markets, however, and steelmakers trimmed off $5 to as much as $15 per ton from the prices paid for shredded scrap and cut grades like No. 1 heavy melt.

But these reductions were not uniform. In Detroit, for example, where mill-delivered prices are often lower than what is paid in neighboring regions because of scrap surpluses, only shredded prices dropped by $10 per ton.  In the Cleveland and Pittsburgh areas, on the other hand, shredded prices were off by as much as $15 per ton, and cut grades dipped by between $5 and $10 per ton.

Lower steel prices, less scrap exports and transport woes weaken scrap prices.

Several factors were key to the weakness in the obsolete grades. First, there is the steady flows of scrap and shredder feedstock into dealers’ yards.  A Chicago area trader said dealers and other suppliers like the auto wreckers and demolition contractors are willing to sell what they have.  They’re not holding back much scrap.  Though it’s almost summer, scrap intake has not risen as significantly as expected.  Yet many are worried about declining flat-rolled steel prices. This could be a harbinger of lower scrap prices, he said, and small scrap dealers are selling all the scrap they have and not building inventory.

The recent mill announcements of $30 per net ton increases in sheet prices have not reassured them, he said. Some believe these may be a Johnny-come-lately effort to stem the steel sheet price erosion.  Hot-rolled coil prices have sagged to as low as $550 per ton on the spot market.  There are reports that prices have recovered and order lead times are stretching out.  Nevertheless, domestic sheet prices are almost $100-per-ton below last year’s levels.

The domestic mills got what they needed this month, said an Eastern broker, but some mills have lowered their scrap requirements this month.  This included the mills making pipe and tubing for the oil and gas drilling industries.   Also, he added, some mills are not looking to build much inventory because it’s the end of the second quarter.

Domestic raw steel production registered a modest decline last week, the American Iron and Steel Institute said.  Output slipped to 1,718,000 net tons while the industry’s capability utilization rate was 73.7%. That’s down 1.8% from the previous week when steel production totaled 1,749,000 net tons and the industry’s operating rate was 75%.

U.S. flat-rolled steelmakers are looking for additional relief from steel imports.

Domestic sheet steelmakers persuaded the federal government last year to impose import tariffs against foreign rivals. Now, however, they have filed a Section 232 complaint alleging that they are facing unfair foreign competition which threatens the survival of some U.S. mills.  The U.S. Commerce Department is expected to issue a recommendation to President Donald Trump this month.

Some steel industry members are looking for a favorable ruling and hope they will get quotas that will limit imports as well as additional tariffs. One Midwest scrap trader said if the recently announced steel sheet price increases fail to stick as some fear, it may demonstrate that the foreign steelmakers are still able to exert downward pressure on prices and may reinforce the domestic steel industry’s case for limits.

Second, according to some dealers, is the absence of much offshore demand for ferrous scrap. This impacts the obsolete scrap market, since little or no busheling and bundles is exported.  The U.S. East Coast export yards are quoting prices as low as $220 per ton for export heavy melt. That’s about $50 per ton below the average mill-delivered price in the U.S.

The last bulk cargo sale by a U.S. exporter to a Turkish mill was a week ago and saw only a modest increase in the bellwether 80/20 heavy melt prices to $274 per tonne delivered to a Turkish port. That is up from $271 per tonne a week earlier.  Demand for containerized shipments of shredded scrap remains steady on the U.S. East and Gulf Coasts, said one exporter, but prices have risen by about $5 per tonne on the West Coast.  He attributed this to higher export prices in Japan and from the region’s newest export player – China. The price of 80/20 heavy melt in containers delivered to a port in Taiwan is now at about $250 per tonne, he said.

Turkey, the main overseas destination for both U.S. and European scrap exporters, has been favoring the European suppliers and avoiding the U.S. scrap market in recent weeks.  There were three cargoes bought from Europe in the past week, but none came from the U.S., said an East Coast trader.

Even if they were offering higher prices and able to sell shredded and cut scrap to domestic mills, it’s questionable whether the docks and the other East Coast scrap suppliers would be able to deliver on a timely basis. That’s because –Reason #3 –both dealers and exporters can’t get enough railcars to deliver scrap to the mills in the Midwest and the South. This includes the cars they own or lease as well as those owned by the railroads.

That’s one explanation some brokers and traders cited as the reason why several mills didn’t cancel undelivered orders from May though they had cut prices this month. It wasn’t worth losing that scrap during the first two weeks of June for a modest reduction of $5 per ton, said a Pittsburgh-based broker.

Most mills had no trouble canceling their unshipped shredded scrap orders because of the abundant supplies of that material, said a Detroit area trader, but some had second thoughts about canceling their orders for cut scrap. A Midwest mill buyer said he lowered his cut prices for five-foot plate and structural scrap, but still needed what he bought in May because deliveries were slow and erratic.  He has been swamped with shipments in trucks because railcars were not available.  This included both from local dealers and distant suppliers, he said and noted that the latter normally rely on railroads.

This has created unloading bottlenecks at the mill’s scrap yard, he said.  Trucks typically carry only 20 tons versus the 100 tons in gondola rail cars.  But they must be inspected and either accepted or rejected immediately because the drivers want to leave.  Shipments in railcars, on the other hand, can sit on a siding for a week or more before they are inspected and unloaded.

Dealers and some mill buyers look for a midsummer lull in the ferrous market.

The current consensus says that prime industrial scrap prices won’t drop in July, which in turn would minimize the downward pressure on some obsolete prices as it did this month. Many of the sheet steel producers, the main consumers of busheling and bundles, expect supplies to drop even further next month as more of the auto industry’s stamping and assembly plants, and the industry’s independent component makers take extended summer vacation shutdowns of two weeks or longer.

A northern Ohio trader said many of the EAF-based sheet mills in Detroit and in  neighboring regions, were hungry for industrial scrap this month. Some were focused on maintaining inventories of busheling as they head into July.  The auto plant closures could come at the start of the month and include the four-day July 4th holiday weekend. That could put a huge crimp in industrial scrap flows during the first two weeks of the month.

At the same time, they are facing competition from some of the area’s integrated mills which are still using a significant amount of auto bundles despite the premium of about $100 per ton over the prices paid this month for shredded scrap and five-foot plate and structural scrap.  Shredded price ranged from $290 to $300 per ton and plate and structural scrap offers were between $285 and $295 per ton while some mills were paying as much as $390 per ton for bundles.

Shredded Scrap Thermometer: Is shredded piling up?

Scrap dealers are harvesting a bumper crop of shredded scrap these days.  They didn’t plant any old Fords or Whirlpool dryers in the back 40 acres to produce this excess.  It’s summertime and the small dealers, peddlers and auto wreckers are selling their shredder feedstock as they usually do at this time of the year.  Unfortunately, there isn’t enough demand to absorb all of this material.  Domestic mills are not building inventories of obsolete scrap as aggressively as they are the industrial grades. There are several explanations for this oversupply. They are:

• Dealers and their suppliers are troubled by the weaker sheet steel prices and the likelihood that the decline could spread to other segments of the industry. Consequently, they may be unloading much of their inventories of old cars and other shreddable materials to avoid losses if scrap prices and demand continue to plummet.

• Export demand is weaker as well.  That’s a key outlet for the exporters as well as the coastal shredders.  Recently, U.S. exporters have sold only a single bulk cargo each week to their best offshore customers, the Turkish steelmakers.  And shredded scrap only accounts for a small portion of those shipments.

• Independent scrap yards are not the only shredded scrap producers these days.  Several EAF steelmakers have installed or acquired captive shredding operations near their mills.  When demand is weaker, they’ll rely on those home-grown facilities to feed their furnaces.  That limits spending for outside supplies and helps the mill-owned facilities to run more efficiently and economically.

Dealers have several “wild cards” they can play to limit the excess supplies of feedstock coming through the front gates each day and to make certain the rising piles of the fragmented scrap don’t spill over the fences onto the sidewalks and roadways that surround their yards.  Two of these include:

• Slashing buying prices. Shredded and other grades of obsolete ferrous scrap are price sensitive.  Some shredder operators prefer to lower prices gradually in a softer market and not alienate their best suppliers.  Others may drastically cut buying prices to many of their seldom-seen suppliers.  In a sense, they may be dumping the excess on rival shredders.  Price-conscious dealers and auto wreckers in a region with several competing shredders will spend several days on the phone polling shredders for the best deal.

• Winter weather slows intake in many yards, but flows will dry up in the summer as well when temperatures rise into the upper 90-degree levels and humidity is high.  Hot and humid weather that lasts for several days or a week can reduce the flows quickly and drastically.


The Nasdaq Futures Exchange (NFX) expects to start trading in the Midwest US shredded scrap index futures by the end of June.  The contract will trade in 20-gross ton units with the prices settled on the 11th day of each month against the TSI Midwest US Shredded Scrap Index published by Platts.  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.