#1 Busheling / Hot Rolled Spread Still Beyond Historical Trend

Scrap prices appear poised to move sideways as we look forward to the month of June, with the possible exception of prime grades (such as #1 Busheling) where demand continues to be strong and flows of prime grades are not as strong as originally projected for the month of May.

Steel Market Update has been in contact with a number of our scrap sources and we learned there have been strong export orders which have been firming up prices in the East. One east coast scrap dealer told SMU:

“It's been a little quiet but the early consensus is that market is up across the board. I think the spread between #1 Steel and shred will narrow in June (it was about $30-$35 in May). My best guess today is that June #1 will be around $415/GT, maybe as high as $425. Export grade #1 is around $405 -$410 del East Coast docks today, but I think that price will rise as exporters chase scrap to fill the boats that will come in to be loaded over the next month. European exports are trading substantially under where US cargos were booked over the last few weeks. But US exporters are ok with that and will likely wait to sell until the next round of Turkish buying.

Shred could be up $10-$15/GT back to $445 - $450 come June. Shred feed flows have slowed from April. Some shredders are raising prices already in anticipation of higher June prices, but most are staying put for now.

The word about prime grades is that they will be tighter come June, up maybe $10-$20.”

While a large national scrap dealer told SMU:

“The scrap market, particularly on shred and cuts seems content to hold firm in June. Supplies and flows are adequate while the recent export activity appears to have shored up pricing. On the prime scrap front however, flows are off slightly while demand remains firm. While the flat roll pricing is waning, increasingly expectations are that any decline in steel prices will not necessarily push down prime scrap prices proportionately. Clearly, metal spreads have been beyond historic levels and when compared to pig iron and imported primes, domestic prompt scrap is a relative bargain today. Finally, scrap and steel inventories are continuing to be managed closely resulting in a taught supply change where neither buyers nor sellers are in a position to say “no” for too long.”

SMU thought the comment made by the scrap dealer regarding traditional spreads between prime grades of scrap (such as #1 busheling and prime bundles) continue to be beyond normal spreads. SMU has referenced comments made by SDI CEO Keith Busse who uses an approximate $150 per ton calculation between prime grades of scrap and finished hot band cost (cost not selling prices). As you can see by the Birmingham Futures graph below, the spread between #1 Busheling and CRU hot band prices was pushed beyond normal limits and thus the correction we have in steel prices (with little movement in scrap prices) is only a return to more reasonable spreads between the two products.

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