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Obsolete versus prime availability

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Views are mixed as to whether obsolete or prime grades will be most impacted by the renewed strength in the domestic steel market. For the most part sources expect that obsolete grades, which include shredded scrap and No.1 heavy melt, will be the hardest to source this year. “Anything obsolete could be very, very tight come July, once the spring flow of obsolete scrap moves through the supply chain,” an Indiana recycler said. 

An Illinois recycler agreed. “Shred will be most scarce. Busheling production will continue to grow as steel production grows. High prices for ‘shreddables’ will ultimately eat up more raw material than will be ready to be replaced. Labor shortages at scrap companies, auto wreckers, truck driver shortages will all align to put crimps in certain shredded supply chains,” he said. 

A West Coast processor also thinks that shredded scrap will probably be hardest to source further into 2018. “Busheling should increase with demand. Shred may not,” the processor said. 

A St. Louis scrap processor has an opposing viewpoint and sees prime scrap, rather than shredded, becoming hard to secure. “Busheling is less readily available. Everyone can get shredder feed,” he said. “I see higher premiums returning for busheling as its supply will not change much and demand for [this] scrap [grade] should continue to increase,” a Carolinas scrapyard owner said, adding that shred reacts to price, but busheling is fairly inelastic.

Meanwhile, a Texas scrapyard owner believes that quality cut grades, like plate and structural scrap, will be hardest to source in 2018 – at least in the area that he operates in. Supply of cut grades – impacted since Hurricane Harvey devastated the area last autumn – is already difficult to source at present and it has yet to fully recover. 

On the other hand, a Houston area scrap dealer is concerned about the supply of steel turnings. “Volume and upstream production from industrial accounts has greatly improved since the hurricane, but still not to the extent we’re looking for. It is still off from spring and summer 2017 peaks in terms of tonnage. I’m hoping that the overall uptrend hasn’t reached a ceiling,” the owner said.

A Chicago broker sees No. 1 heavy melt becoming harder to find as processors decide to shred HMS instead of cutting it. “Cut grades will dwindle as more high-power shredders consume unprepared steel rather than torch or shear it,” he said. 

A national broker said that shred will continue to be under pressure. “Busheling is price inelastic, whereas shred is price elastic so shred will be the much more difficult item to secure going forward. Auto wreckers are very much in tune with pricing and move their feedstock to shredders based on their perception of the scrap market,” the national broker said.

The tightness in shred has become increasingly apparent. The spread between busheling and shredded scrap narrowed to $15 a ton in Chicago during March settlements, compared with nearly $80 a ton in mid-2017.

While it is impossible to accurately quantify the size of today’s scrap reservoir, many market participants feel that it is not as deep as it used to be. “The lack of low hanging scrap coupled with the reduced base of industrial scrap generators could lead to shortages. Higher prices may not significantly increase scrap flow since there is probably less elasticity of supply versus 2008. The higher prices in 2008 seemed to bring out scrap that was in the fields for decades. This scrap supply has not be replenished,” the Carolinas processor said, noting that shred and busheling could be equally challenging to source this year.

By: Mei Ling Toh and contributions by Lisa Gordon

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