The most underappreciated scrap grade

These grades have about the same Fe content, and they all contain high alloy residual levels as compared to #1 Busheling (ISRI 207). Despite the chemical similarities of HMS, P&S, and shredded scrap, there seems to be a reluctance on the part of the EAF sector to use HMS – except at a much cheaper price.

Why is HMS so cheap in the US?

These grades are not similar in physical characteristics. HMS and P&S are generally cut 5’ X 2’, thereby having less density than shredded scrap. Shredded scrap is much smaller and melts more uniformly than HMS. But does this fact make HMS worth that much less than shredded considering the Fe content?

The spread between shredded and HMS in Chicago this month is at $90 per gross ton (gt)! Really? The spread between HMS and P&S is $75/GT. This is according to several scrap publications that follow local pricing. Basically, HMS has a similar specification to P&S, except it’s not true plate and structural steel. Both roughly have the same basic density. There may be a bit more residual alloys in HMS. But certainly not enough to justify this type of discount.

At this type of discounted price for #1 HMS in the Chicago/Detroit districts, integrated mills there must be enjoying using this grade as coolant in their basic-oxygen (BOF) furnaces as opposed to other much more expensive grades. The EAFs making the flat-roll could be losing some of their price advantage by not figuring out a way to incorporate HMS into their melts.

These wild price differences are less pronounced in the districts in the Southeast, where the price of #1 HMS is reported at $350/gt-$360/gt. This is more reasonable considering P&S and Busheling are at $375/gt and $400/gt, respectively. Still, it seems like too much of a spread if you review the specifications and consider the Fe yields.

Its value is recognized abroad

The grade of #1 HMS was the bellwether scrap grade in the US for decades, until shredded scrap took over with the proliferation of the shredder over the last 20 years. However, it is still generated in vast quantities in the US.

The main export grade in the US and across the globe is a hybrid grade of 80% #1 HMS and 20% #2 HMS. In April, this grade is worth about $350/gt FOB USEC/USGC to deliver to Turkey in the low $390s. So, in Turkey, it’s worth $390/gt. But in Chicago it’s only worth $325/gt. And that’s with a 20% inferior blend bringing the Fe yield to a significantly lower level.

The spreads between shredded and HMS 80/20 in Turkey and Mediterranean Basin are not like those in US. Until two years ago, shredded carried only a $5-per-metric-ton (mt) premium over 80/20. Today, it’s risen to $20/mt. On the West Coast, it’s $5/mt-$10/mt.

So how come it’s so different here?

The takeaway

Given predictions of future increases in scrap demand and with new capacity being installed over the next several years, there should be a window to use #1 HMS to blunt runaway price increases. It would recapture its rightful status among the #1 grades of scrap in North America.