Rebar-shred spread historically high in 2022, likely to narrow through 2023

“Going forward, good rebar demand for infrastructure will be offset by a further slowdown in residential construction and we expect that the spread between rebar and scrap prices will narrow through 2023,” Fastmarkets analyst Paolo Frediani said.

Indeed, rebar market participants expect mills to offer new discounts following October’s scrap settlement.

Fastmarkets’ assessment for steel reinforcing bar, fob mill US was $50 per hundredweight ($1,000 per short ton) on October 5, while the steel scrap shredded auto scrap, consumer buying price, delivered mill Chicago was last assessed at $385 per gross ton ($343.75 per short ton) on October 7, marking a $656.25-per-short-ton spread between the two prices.

The spread has narrowed from an average $688.50 per short ton in July. Still, it remains 16.08% higher than October 2021, when the cost of rebar averaged $565.36 per short ton above that of shredded scrap, and 94.05% higher than the $339.94-per-short-ton spread in October 2020.

The cost to convert shredded scrap into rebar is a moving target, making it hard to point to an exact profit margin, according to Frediani.

However, the historically wide spreads between the two products throughout 2022 have largely been driven by rebar market demand remaining strong enough to support high price levels while wider demand for scrap metal has softened, indicating that rebar producers’ profit margins have widened significantly as well.

“The disconnect between rebar and scrap prices is the consequence of strong rebar demand from the construction sector,” Frediani said. “Scrap prices have fallen in recent months as demand from flat steel producers is weak.”

Rebar prices have not entirely avoided the general weakening of steel prices from the past several months, falling by 11.50% to current levels from an all-time high of $1,130 per short ton in June 2022.

Still, the price has held up considerably better than that of shredded scrap, which has fallen by 21.43% from $437.50 per short ton in the same time frame.

“While we have seen a slowdown in residential construction in recent months, this was starting from very high levels and mills have remained busy so far,” Frediani said.

Rebar market participants also recently said that while they were only buying what they needed due to overall market softening, construction work was holding up better than might be expected and enabling rebar prices to stay more stable than those of other steel products.

At the time, some sources felt rebar prices could be stable at current levels through October or November, though sentiment grew more bearish leading up to October’s scrap settlement when it became clear that the cost of Chicago shredded scrap would fall again.