MUNICH Weak demand from
U.S. steel mills is not likely to offer any major support to
shredded scrap prices despite reports of supply tightness,
according to market participants.
Strong flows of prime scrap,
particularly No. 1 busheling, throughout the year have allowed
many mills to increase their intake of busheling during the
past few months, sources said. Increased busheling in each melt
will continue as long as busheling and shredded scrap prices
remain on par within $5 to $10 per gross ton of each other,
Buyers at some mills confirmed
the trend, but many said not every steel mill is structured to
take advantage of such anomalies.
"Some mills have the ability and
do change their melt practice to optimize on grades that have
higher yields and are lower-priced. Its always about
value in use. Ive actually increased the percentage of
busheling in our charge the past three months because its
been a good value," said a buyer at one mill. "Depending on the
type of busheling, the density may not be as good as shred,
"Prime can be substituted for
shred," a buyer for a second mill said. "You give up some
density, but chemistry-wise and yield-wise, prime is better.
The benefit that shred provides vs. prime is better density.
When prime (prices) compress against shred, mills can and do
adjust their mixes to a point. There will still be demand for
shred, but it will be lower as long as prime is trading at or
below shred levels."
A few sources said that while a
change in mix toward No. 1 busheling is a more logical approach
in the current price environment, some mills will not take
advantage of it due to traditional melt-shop practices.
"My sense is that only the most
stubborn steel shop managers will want to hold their scrap
mixes. Shredded will need to adjust or fade as a percentage of
the scrap buy. Given the seasonality, we are likely to see some
of the feeder network pull back supply, at least marginally," a
third source said. "Integrateds will buy more bundles and
electric-arc furnace shops more busheling. Theyd be crazy
not to do so."
startweve startedto look at using more prime
scrap," said a source at a fourth mill. "But every melt shop
guy has his recipe. If youre making rebar, its a
different story than if youre making flat-rolled
products. Rebar guys should start using more prime because
its better for them. It has low residuals. Id run
all the busheling I could." He said his mill had cut back its
purchases of shredded scrap by 20 percent since July in order
to take in more No. 1 busheling.
"The mills or melt shop
superintendents prefer their normal shred mix in spite of the
price/residual ramifications of cheaper prime scrap," a fifth
source said. "There will be mills that will tweak their melt
and consume some percentage increase in prime vs. shred."
He said that softening demand
"will offset the reported tightness of shred supply feedstock,
allowing mills to buy cheaper in October without much
Others agreed. "Im not
certain that I have a strong view on how this phenomenon may
impact prime and shred prices. (It is) likely the abundance of
prime will not permit shred prices to rise even if shred supply
is actually tight," the first source said.
"Some mills have the ability to
shift melt practices and use more prime, but some dont
have as much flexibility or still prefer to use frag (shred)
over prime for efficiency issues," a sixth source said. "I
think there will be some shift to prime, but not enough to keep
prime prices from falling more than shred prices this
A few sources, however, said
that while some mills could switch to taking in more busheling
scrap, it will not necessarily affect prime scrap prices
because the trend is not universal.
Several market participants in
the Midwest have speculated that prices for both prime and
obsolete grades of scrap are set to shed between $30 and $50
per gross ton for October (
amm.com, Sept. 27).