PITTSBURGH The shrinking spread between prime and obsolete grades of scrap is expected to continue due to a tightness in supply of shredded and cut grades of metal scrap.
"Obsolete scrap remains tight and the short supply will lead to better prices. With prime scrap now very close in price to shred in Detroit, the demand for busheling will increase," one Detroit market source said.
The Detroit and Chicago spreads between No. 1 busheling and shredded auto scrap stood at $45 per gross ton Dec. 1. It now stands at $14, marking a $31-per-ton narrowing over the course of the month.
Other areas are experiencing similar phenomena. In Alabama, the spread has shrunk $5 to $27 per ton, and in Pittsburgh it has dipped $15 in one month to $32 per ton.
Steel mills are expected to step up their purchases of No. 1 busheling and bundles, which results in a higher metallic yield as it becomes more affordable.
The scenario is playing up for an unusual phenomenon, one Chicago source said.
"(Heavy melting scrap) No. 1 and No. 2 will continue to be in very short supply, as those grades are for the most part now being shredded. The spread between prime and shredded will continue to compress to where we could see the two grades on par or even inversed. However, this will cause mills to chase prime more as yields and chemistries are better, and once again open the spread between the two," he told AMM.
The hierarchy of scrap prices went awry in May 2012, with busheling selling at a discount to shredded scrap (amm.com, May 4, 2012).
The narrowing price trend is due to a combination of tight supplies of shredded and cut grades coupled with a relatively healthy manufacturing sector, which is increasing the amount of prime scrap to the market.
The weather is also a factor. "So far it is only December and it appears that we might actually have a real winter this year. Weve been spared for the last couple years, but the cold weather and snow will slow down peddlers," one Birmingham, Ala., scrap processor said.
Peddlers are an important source for obsolete scrap.
"Supply is weak and this is the worst time to try and get material. It is just not available. Ever work outside when its single-digit temps?" one Pittsburgh scrap processor asked.
The pressure on the tight obsolete grades is being felt at the scale houses of auto shredders.
"Some shredders are already behind on their orders because of the slow inbound (deliveries)," the Pittsburgh source said.
"We are hearing that shred will again push the market in January and that some mills are already pushing for January shipments on a (to-be-determined price) basis," the Detroit source added.