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
"Im 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
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 scrapyardscoupled with increased
competitionhave 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.
"Ive received calls from
exporters three times this week. If they call me, the market is
going up. If I call them and they dont get back to me, I
know the market to going to pot," a Northeast shredder source
told AMM Thursday. "Its only mid-April. Export
still has time to catch up this month."
The national scrap supplier
source agreed. "Somethings 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
dont 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 doesnt 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 theyre
losing money because theyre 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 arent
complaining are the independent feeder yards. "Shredder margins
are the lowest weve 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.