Change is inevitable, but perhaps nowhere is this more
keenly evident than in the ever-evolving and often-volatile
The quality and supply of heavy melting steel scrap have
changed drastically in the past decade. The main driver of the
change has been the export market, according to mill buyer and
broker sources, but also draining the pool are the sharply
higher prices demanded by dealers for all grades of scrap, some
"For the most part, P&S (plate and structural scrap) has
stayed the same. It is the No. 1 heavy melt that has changed,
and that's mainly because of the export market," one mini-mill
scrap buyer said, noting a dramatic change in the supply of
heavy melting steel scrap in the past few years.
A key reason for that is the change in the mix of exporters'
heavy melt sales to their offshore customers. Traders are now
selling cargoes of 80-20 and 70-30 heavy melt mixtures rather
than the solely quarter-inch-thick cargoes of No. 1 heavy melt.
The 80-20 heavy melt grade is expected to include about 80
percent of No. 1 heavy melt and 20 percent of No. 2 heavy melt;
likewise, 70-30 is a 70-percent cargo of No. 1 heavy melt and
the balance No. 2 heavy melt.
Mill buyers might dislike the U.S. scrap exporters' combo of
heavy melt, one mini-mill broker said, but it's better than
what they are seeing from some European export yards. "They
call it 80-20 and 70-30," one former steel executive said, "but
I think it's more like 10-90."
Did the European scrap exporters create these 80-20 and
70-30 mixtures? No, one southern broker said. Such combinations
have existed in the U.S. market for decades; they just weren't
labeled as such. In the South, some mini-mills and brokers
typically bought cut ferrous scrap called mixed heavy melt,
which includes varying amounts of both No. 1 and No 2 heavy
melt, he said. Likewise, some Midwest mills buy a grade called
No. 2 heavy melt extra dense. How thick the scrap might be
isn't as critical as requirements that it is no more than 3
feet long and that each railcar load must have a certain weight
Another mill buyer said the quality of No. 1 heavy melt has
deteriorated most sharply along the U.S. East Coast, and he
blames the exporters for siphoning off much of the
But one broker said it is unfair to blame exporters for
downgrading the supply and quality of cut scrap. The big
megashredders are eating up more of both the No. 1 and No. 2
heavy melt these days. Sometimes it is a matter of feeding the
expensive machines when there is no other feedstock and raising
the value of the scrap, he said.
Shredded normally sells for a premium over heavy melt. Some
of the big shredders might be gobbling up this material, he
said, but in many Midwest markets where he trades there is
still enough plate and structural scrap-much of it too thick to
be stuffed down a shredder's yaw-to meet the needs of domestic
Quality problems in heavy melt grades also are emerging from
the types of scrap that are now being added to the mix, one
buyer said. The heavy melt stream is filling up with
reinforcing bar and other steels that were made from scrap in
mini-mill furnaces. Each time that material rolls into the
scrap stream, it has more residuals, he said. This is different
from the steel products that were produced from iron ore and
pig iron in the integrated mills, which included a smaller
percentage of scrap in the charge.
Now the mills are finding that more of the purchased
secondary grades like heavy melt might include unwanted
elements like copper and sulfur, he said. "If you are making
rebar or another steel product in which formability is not as
critical, you may not care that there is 0.3-percent copper in
the melt," he said, but if you are making a sheet product then
it's a problem.
Another veteran Midwest broker said that mills are more
critical of scrap supplies today because they have testing
equipment like mass spectrometers to back up suspicions that
the scrap has too high a copper content or other unwanted
And it's not just the exporters that have shrunk the
secondary ferrous scrap stream, he said. The shift in the
grades bought by the big integrated mills also has reduced the
supply. The integrated mills, which buy only 10 to 20 percent
scrap for their basic oxygen furnaces, had been selective about
what they would use. Factory bundles and heavier cut scrap like
plate and structurals were preferred, while heavy melt and
shredded were unwelcome and usually left to the mini-mills and
But that has changed, largely as a result of computerized
scrap-buying programs like Tube City IMS LLC's Optimizer.
Brokers and buyers for the big mills enter the prices of the
various ferrous grades into the computer program and let it
tell them what will be the optimal mix of ferrous scrap for
that month's steel production.
"We run a system that tells us what our optimum buy should
be," one mini-mill scrap buyer said. "When we enter all the
parameters of the chemistry, yield and electrical use, it tells
us to buy, say, 50 percent of No. 1 heavy melt and 30 percent
of plate and structural scrap. It's all because of costs. Heavy
melt is one of the lower-cost grades. We follow the system
which gives us a path on what to buy."
These computer market analyzing programs have even taken the
big basic oxygen furnace shops into aisles of the scrap
supermarket where they have never been. Some Midwest mills are
now buying rail crops and railcar wheels-material that was once
largely foundry scrap feedstock.
Plate and structural scrap might still pass muster with most
buyers and brokers, but some complain that there are regions of
the country where this key grade of cut scrap is in tight
supply. It's readily available in some of the larger cities in
the North, but in short supply elsewhere. This, one Pittsburgh
broker said, might be because there aren't as many major
When scrap prices spiked in 2004 and again in 2008, that set
off a wave of demolition activity. Some are anticipating
another such surge when the Obama administration's
infrastructure rebuilding programs get moving, he said, but
noted that it has yet to produce any major teardowns.
"What the scrap dealers and the mills that use a lot of that
P&S are looking for are some big wrecking projects like a
stadium, but what they have seen thus far in 2010 is small
potatoes," he said.