US shredders have been forced to lower collection prices in recent weeks in the face of thinning margins from rapid declines in ferrous and nonferrous scrap prices, which has taken a considerable toll on inbound scrap flows.
Shredders surveyed by Argus reported inbound scrap volumes have fallen in excess of 20pc from the prior month following a nearly three-year low in shredded scrap prices, and near historical lows in zorba, a shredded non-ferrous scrap grade consisting of predominately of aluminum.
The slowdown in scrap flows continues the broader trend of gradually slowing collection rates of obsolete scrap over the last few months following subsequent declines in prices.
National average ferrous scrap shredded prices delivered to consumer fell to a nearly three-year low in October with prices sliding by $34/gt to $216/gt delivered mill, the lowest since November 2016.
Average shredded scrap prices have fallen by $148/gt since the beginning of the year, with October prices down by 41pc from levels witnessed at the beginning of the year.
Shredders have found no reprieve on the nonferrous side of the business either, with average US export prices for 99/3 quality, commodity-grade zorba fas east and west coast down by 17¢/lb so far this year, about 34pc down from January and the lowest level reached in Argus' price history.
The short-term outlook on zorba remains bleak as most Chinese end users have suspended purchases due to uncertainty over the government's final import policy and fears that the country's import quotas for the fourth quarter will be reduced by 80pc from the previous quarter.
A combination of weaker domestic and export demand for both ferrous and nonferrous scrap amid slower global growth has fueled the steady decline in prices so far this year.
Faced with the fall-off in processed scrap sales prices, shredders have been forced to pass through the drops resulting in lower collection prices.
Average shredder feed buying prices in the US have reached or, in some cases, fallen below $100/gt, a level considered by market participants to mark the price point where flows considerably slow down because peddlers struggle to remain profitable.
Due to this, shredders have been limited to the degree they are able to lower prices while still being able to maintain adequate inbound volumes, a delicate balance which has been pinching profitability.
Shredders surveyed by Argus estimate that the operating expense for a shredder when accounting for fixed and variable costs of production can range anywhere between $65-105/gt, depending on several factors, including but not limited to labor and electricity costs.
When comparing these production costs to the current spread between inbound shredder feed collection prices and shredder sales prices to consumers excluding freight, the resulting margin has become razor thin for shredders, with some higher cost operators close to reaching a breakeven point.
With margins this tight, shredders have been limited in what they are willing to pay to get material into their yards, which will lead to considerable slowdown in obsolete scrap availability heading into November.
Shredders have been quick to point out that current collection rates could be poised for even more of a slowdown as the impacts of winter weather materialize in most regions in the coming months.
On the eastern seaboard, a rally in Turkish import prices and a few higher priced sales from US exporters has helped to take off some of the pressure to shredders.
Still, weak US domestic finished steel demand and uncertainty over the robustness of the export gains through the remainder of the fourth quarter is forcing most shredders in the US to move cautiously going forward.
