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Shredders hopeful, see hints of price bottoming

Keywords: Tags  shredded scrap, export prices, Lisa Gordon

PITTSBURGH — Shredder operators looking to improve what have been razor-thin margins see a ray of hope, with market expectations hinting that the shredded scrap market might be nearing bottom as the gap between export and domestic pricing narrows.

After taking a financial hit for a few consecutive months, shredders have been facing increased idle time, which is creating tightness in the market. "This whole thing has reached a boiling point," said a source at one scrap supplier that operates throughout the United States.

Some recyclers paying $335 per net ton at the scale and selling shred to the mills at $435 per gross ton delivered claim they are losing more than $40 on each ton sold. Others say they are making just a few dollars on each ton.

"I’m not going to wear out a perfectly good piece of equipment to lose money," said one Southeast shredder operator, who is now running just two-and-a-half days each week.

The same phenomenon is seen in Chicago. "The megashredders have a lot of idle time because of (the) lack of material to run," a raw materials agent at a melt shop said. "Margins are squeezed because of the competition."

Shredded scrap prices, delivered to the mill, have fallen by $40 per gross ton in the Chicago area since January, and lower buying prices for unprocessed material arriving at scrapyards—coupled with increased competition—have reduced flows, forcing shredders to operate fewer hours each week.

As shredders opt to sit idle to stop the bleeding, the spread between export and domestic prices has narrowed to just $15 per ton. Export docks are now paying $420 per ton for shredded scrap, up from $400 just a couple of weeks ago, vs. domestic shredded scrap prices averaging $435 per ton.

"I’ve received calls from exporters three times this week. If they call me, the market is going up. If I call them and they don’t get back to me, I know the market to going to pot," a Northeast shredder source told AMM Thursday. "It’s only mid-April. Export still has time to catch up this month."

The national scrap supplier source agreed. "Something’s got to give," he said. "Shred went down but no one changed the buy price (at the scale). No one has enough feedstock. Shred is going to have to be level or go up next month, because you have had a warm winter and don’t have pent-up supply coming to market. Everyone is running hand to mouth now."

In the Pittsburgh region, one recycler has taken to dedicating one day per week to shredding aluminum. The reduced running time doesn’t stem from a lack of demand but a lack of supply, with players in fierce competition for the same material. The abundance of shredders and the lack of feedstock means higher per-ton operating costs for shredders, with sources across the country unanimously reporting low or nonexistent margins.

"The operating profit is already lowered because there are less tons to run, and they’re losing money because they’re overpaying for the scrap," the national scrap supply source said.

"Margins are very low because too many shredders are chasing a finite amount of material. . . . The same amount of material is being shredded, but each shredder has less, resulting in fewer operating hours," an eastern shredder source said. "In addition, the nonferrous downstream is facing headwinds. The auto parts yards and those selling junk cars to shredders are taking all the goodies off the cars before selling them to the shredders, so the total nonferrous metal recovery has (diminished) as well, further squeezing the margins."

"There are too many shredders in relation to the amount of feedstock available. I suggest that half of the existing shredders be cut up for (heavy melting scrap)," a second southeastern source said.

Even shredders with a plethora of feeder yards are facing additional costs to move feedstock to the shredder, which equates to paying inbound freight to the yard and outbound freight to the mill on each load.

The only ones who aren’t complaining are the independent feeder yards. "Shredder margins are the lowest we’ve seen in years, and it will remain that way because everyone who has a shredder needs to overpay for material," said one New York feeder yard owner who is enjoying high profits on his sought-after material.

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