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Prime, shred differential to shrink in late summer?

By Bill Beck - June 19, 2017

The last time the differential between prime grades and shredded reached the levels they are today was during the market collapse of 2008-2009. “Back then, primes were $800 and shredded was trading at $600,” said a Canadian broker.



Industry Survey of Factors Affecting the Upcoming Market

Imagine having advanced notice of what your allies, competitors, peers and clients are thinking about what's to come in each new monthly scrap market. Scrap Trends Outlook, delivers an exclusive look at where prices, supplies, demand and other factors may be heading. Each month, Scrap Trends Outlook gives you a chance to listen in on the emerging industry conversation about the upcoming scrap market and provides a comprehensive tool for buyers and sellers to gaze into an industry consensus of where the price and availability of scrap may be heading.

Numbers and Letters

A quick look at key points expected to affect next month's markets

3

The number of years in the past decade that scrap prices have seen decreases across the board in July markets. Prices have risen four times, and were mixed in the other three years. Many are predicting mixed results yet again, as prime, cut and foundry grades could be up or sideways while shredded may fall or be steady due to supply.

74

The steel mill percent capability utilization rate for 2017 to date through mid-June stands at 74.4 percent, according to American Iron and Steel Institute data. This is running 2.5 percent ahead of the same period last year. Raw steel tonnage produced also is running ahead of last year so far in 2017, now standing at 41.6 million tonnes.

69

The percentage of respondents to this month’s survey who expect July prices to be sideways. Another 25 percent say increases are likely. Only 6 percent say a decrease is possible. Prime grades are expected to show the best performance next month, although cut grades and foundry scrap also could rise. Only shredded scrap prices may fall.

Our Methodology

Scrap Trends Outlook Methodology: A numerical value is given to the overall trend for the upcoming month after all the survey results of a series of 15 indexes are calculated based on a weighted average. A number close to 50 will give a ‘sideways’ or ‘unchanged’ reading, while numbers above 50 will give a reading for a bullish trend. The closer to 100, the more likely it is that prices will trend upward. Conversely, a number below 50 will give a reading for a bearish trend. The closer to 0, the more likely it is that prices will trend downward. N/A means there were too few survey responses to publish a reliable figure.

Taking Account

A look at how Scrap Trends Outlook Index numbers for June stacked up against actual changes in last month's market.

Prime Grades

June Review
June Review
June outlook:
Bullish (52.6)
June's actual change:
Busheling: +/- $0/0% 
Bundles: +/- $0/0% 

Cut Grades

June Review
June Review
June outlook:
Bearish (46.5)
June's actual change:
No. 1 HM: - $5/2% 
P&S: - $5/2% 

Frag Grades

June Review
June Review
June outlook:
Bearish (45.9)
June's actual change:
Shred: - $10/3% 
 

Foundry Grades

June Review
June Review
June outlook:
Bearish (47.7)
June's actual change:
Punchings: - $3/1% 
Misc. Foundry: - $5/1% 

10 Things to Watch

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1.
If export demand becomes strong, many say the sky’s the limit on how high prices may rise in coming weeks
 
2.
Mill inventories are stable, creating demand opportunity
 
3.
Freight rates will continue to drive pricing up


 
4.
Historically, July has been a sideways-to-strong month





 
5.
An overall lack of supply is expected to drive prices up
6.
Mill production rates are expected to remain relatively stable, even as orders for steel may drop during summer
 
7.
Prime grades are in short supply in some regions
 
8.
Local inventories may begin to fall significantly





 
9.
Service center demand is expected to hold steady


 
10.
Raw steel capacity utilization rates are stagnant

Notable Quotes about Next Month

" Prime production is already in decline. Mills that have been beating down shredded will have to buy more to compensate for the loss of prime scrap."
" July another short month, prime to head down due to over supply, others may also be down or sideways."
" Pricing will remain under pressure as long as the mills can continue to get the tonnage needed at these prices."
" The exporters seem to have trouble getting enough scrap and are shopping for large tonnages at higher prices."
" Surplus scrap seems to putting pressure on scrap pricing."
" Supply/demand is in balance."