Price Spread to Return Between Shred and Prime Grades of Scrap

Shredded ferrous scrap prices are now projected to be down $15 to $20 per gross ton in the Chicago market according to SMU sources. At the same time prime grades (like #1 busheling) are expected to tread sideways (remain the same as prior month). If, once the deals are completed, all runs true to the forecast course, then the spread between shred and Busheling will be approximately $15 per ton.

A combination of a surplus of shred in the Midwest and less demand from steel mills is apparently working to restore a healthy spread between the two grades.

At the other end of the spectrum, cut grades are forecast to come down $5 per gross ton in the Chicago market which will tighten the spread between cut grades and shred.

Mills throughout the country are taking their time entering the market in an effort to drive prices lower.

Pittsburgh mill buyers are slow to begin buying as they are trying to bring down the price of cut grades and shredded scrap. A scarcity of heavy melt over the winter has made Pittsburgh #1 HMS the highest priced in the country at $400 per gross ton. In April it sold at a $10 premium to Cleveland and a $15 premium to Chicago.

Shredded scrap is expected to fall in the Cleveland to Pittsburgh corridor by $15 a gross ton and one East Coast seller placed shred in the area at $390 to a broker which is essentially $395 a gross ton. In April, shredded scrap sold at $420 and $415 in Cleveland and Pittsburgh, respectively.

The Southeast shredded price will retreat as well, according to SMU sources.

We received the following from one of our active scrap sources:

“A few things have been going on this week.  In the OH Valley, South, and Midwest some transactions have been done but many of them have been on a tbd price basis.   But other mills have yet to make any buys.  So it’s still very unsettled, especially with respect to prices for shred.  

“Timken and Republic surprised the market with news earlier in the week that their May buy programs would be curtailed because they had enough inventory on the way or on the ground.   

“The other factor has been one shredder in the Northeast offering its shred in what I would describe as a desperate way to simply get some sales and not get shut out of shipping to the OH Valley.  Some shred tons were sold into the Pittsburgh at $390/GT which was about $20 under April.  What’s surprising is that the mill that bought those tons was talking sideways to down maybe a few dollars earlier in the week.  The offer from the shredder was like a gift from heaven.  And these low ball offers have been common from the shredder throughout the Valley.  So I think these lower prices being talked about for May are lower than they should be.  

“Prime scrap looks to be much tighter and may register unchanged prices from April.

“Flows are better than they were but still below typical springtime flows by anywhere from 10%-20%.  Export tons continue to come into the domestic market but at a slower pace than they did a few months ago.  Some newer export sales to Turkey have occurred recently around the $375/MT CIF level off the east coast.  

We should have a better idea for pricing early next week. “

The scrap market is at its peak and will retreat over the next couple of months. A combination of the spring thaw bringing out scrap and summer slowdowns will drive the market lower in June and July. The big question is, how much?