NEW YORK The price premium that British shredded scrap has long enjoyed over U.S. material is eroding due to Indian steel mills sporadic demand for shred, some market participants said.
Shred from most parts of the United Kingdom has typically enjoyed a premium over U.S. shred, as more tonnes are loaded into each container, less light iron is shredded there and shipping times to India are shorter, some exporters and buyers said.
The typical premium has ranged between $5 and $10 per tonne over U.S. shredded scrap prices, the sources said.
British suppliers need to export volumes due to the small size of their domestic market, one exporter said. "One of their biggest markets for shred is India, and when India is not buying, they have to lower prices," he said. "So theyre agreeing to drop levels to prices of U.S. shred. And some U.S. exporters are taking sales at the current price levels because of the negative sentiment for May in the domestic market."
The premium for British shred over the U.S. product shrank to as low as $2 per tonne on some shipments this past week, a second source tied to a large exporter said.
"The prices for shredded sales were $415 from the United Kingdom and $410 to $412 from the United States (delivered Nhava Sheva)," he said. "The United Kingdom is still getting a premium because they load 27 tonnes into a container and have shorter delivery times. They can deliver in 20 days vs. the 40 days it takes for U.S. scrap. And the U.S. loads 22 to 25 tonnes in containers. Only some exporters in Georgia are loading 27 tonnes. Thats why sometimes the United Kingdom gets up to a $10 premium for its shred."
One the biggest reasons for the British shred premium is that the United Kingdom has depollution stations, a third source said. "Cars are complexly stripped before they hit the shredders. The regulations with regard to recycling scrap in the United Kingdom and European Union (are) much stricter than (they are) here, which in essence makes it a bit cleaner, " he said.
"There are also less containers shipped from the United Kingdom and European Union. For instance, a 500-tonne order from the United States is typically 20 to 25 containers. From the United Kingdom/European Union, you are looking at 18 containers. That keeps the clearing cost down," he added.
"When you are talking about a premium, it is maximum $5 and it tends to (occur) in a more active market. In todays market, there are not as many active buyers, and the ones that are buying are buying at reduced tonnages. Thus there is enough (British) shred to cover the market (and) thus no reason to pay the premium. There are still mills out there that dont care if the shred comes from the United States or the United Kingdom/European Union, but most prefer (the latter)," he said.
A fourth source claimed that the quality of British shred is "much better" because they shred less light iron. "In the United States, they shred 50- to 60-percent light iron and (the) balance cars," he said. "The mix is very different and favors more cars in the United Kingdom."
One U.S. exporter conceded that some British shred could be better than the U.S. product, but challenged the assertion that European shred is also on par.
"People will complain about 21 tonnes loading of U.S. shred; however, all buyers know U.S. 211 shred is better than most European shred because European shredders frequently mix muni scrap or dust while loading. There are few more (considerations) beside price and weight per box," he said.
But the longer-term outlook for demand looks promising despite the current lull, a scrap buyer for an Indian steel mill said. "There is a general sentiment that the Indian economy is going to start churning out some improved gross domestic product numbers in the coming quarters, so we hope to continue our momentum," he said. "Finished product demand is still weak, but mills have to keep buying and people are in the market."