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Shredded scrap prices likely to dip in Sept.

Keywords: Tags  ferrous scrap, steel scrap, shred, busheling, prime scrap, Chicago market, Detroit market, Sean Davidson

NEW YORK — Shredded scrap prices in the Midwest appear to be precariously poised for September trade as early speculation points to a modest softening.

Early trades of shredded scrap in the Detroit region at about $10 per gross ton lower than levels fixed for August tied in with market speculation that shred prices could trend as much as $10 lower depending on the Midwest location, with Detroit expected to be the weakest.

The consensus view from nearly 75 percent of sources polled informally by AMM suggests that cut grades could falter a little—although not by the same amount as shred—while prime grades are expected to trend between sideways and down a little. Most sources speculated that steel mill demand will be similar to August, if not a tad better, in most Midwest markets, barring a possible drop in the Detroit area.

Many market participants summarized their speculation for next week’s trading as "soft sideways" and "sloppy sideways."

A mill buyer in the Chicago area said he doesn’t expect the Chicago market to ape Detroit. "I can’t see Chicago being down much. Some of the other districts have been paying some premiums over the Chicago market, so maybe there may be some adjustments there. Still, it feels like more of a sideways move," he said.

A second buyer in the same region said trading should start in the middle of next week. "(My) outlook is primes sideways to down $10, shred down $10 or more. I do not expect shred to go down less than prime," he said.

Meanwhile, a market participant in Detroit said there appears to be a lot of scrap on offer in the area, reporting shred trades at down $10 and cut grades down $5, with at least one mill buyer pushing for an additional $5 down on cut grades.

A second source in the Detroit area said dealers were hoping for a sideways to soft-sideways market. "The disparity between busheling and auto frag (shred) is huge. ... Auto frag seems to be the one item that remains plentiful right now. Really, it is too early to make any predictions because things are very quiet," he said.

A seller to most key Midwest markets said shred outlook is weak due to a good supply of shreddable material into dealer yards. "Inbound flows for shredding have been good the last two months, so the supply is there," he said.

However, another dealer said any price move in Detroit would serve as more of a correction. "I still think the Detroit weakness is attributed to the extra strength shown there in July. In other parts of the Midwest, deliveries to processors are still spotty. Overall, total tons are still depressed from 2011-12 levels. I have heard of scrap processors that in early August tried with little success to lower prices by $20. Eventually, margins have to be built into prices," he said.

Other dealers said any push by mill buyers to drive down prices more than what qualifies as "soft sideways" would meet resistance.

"Shred is already trading lower than plate and structural, and it looks like there will be good demand in the Midwest for September," a third dealer said.

Sources said cut grades are expected to perform better than shred due to tighter supply.

"Cut grades are still in very short supply. Maybe that’s because the shredders are shredding those grades vs. torching and shearing, and that is also adding to the slight overhang of shredded. Material in the upper Midwest will thin out as the farmers get ready for harvest," a source at a large regional shredder said.

Only a small portion of sources polled speculated that prime grades could move in tandem with shred, with most pointing to a flat market on a supply-demand balance.

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