AMU Survey: UBC stability expected despite firmer Class scrap and mixed premium signals

CRU Group’s November scrap analysis noted most “class scrap” grades (Class I, Class II, and Class III) gained between roughly 4%-9% month on month, but UBC prices rose by only about 1%-2% and once again failed to keep pace with ingot pricing. (CRU Group is the parent company of AMU.)

At the same time, CRU’s flat-rolled report pointed out domestic can sheet shipments through October were still modestly lower year on year, and that imports of can sheet continued to take share in the domestic market.

Demand on the sheet side is not running hot enough to pull scrap into shortage.

Instead, the structure of the market looks like this at year end: a high primary price environment; a beverage sheet sector that is steady but not surging; and a UBC stream that remains well supplied.

Considering those circumstances, our late-November survey shows a trade that mostly expects UBC prices to hold steady into December, with only small pockets of bullishness or bearishness.

When you put the survey side by side with CRU and AMU commentary and with the trade data for UBC imports and exports through August, the theme that surfaces is a market that sees UBC’s as cheap relative to the Midwest transaction price and unlikely to break sharply in either direction in the near term.

Survey expectations for cans, the premium, and market balance

The clearest signal from AMU’s survey is the disposition toward stability in UBC pricing.

Among respondents who answered the question as to how they see UBC prices trending next (the current) month, most expect prices to remain stable, while the remainder is mostly split between expectations of increases and decreases.

The view cuts across roles but shows some pattern when you split by position in the chain.

Recyclers and scrap processors are the most uniform group, more than 80% expect “stable” pricing, while a little more than 15% expect “lower” prices—none expect “higher” prices.

From a broader supply standpoint, most respondents that answered the question as to whether there is enough obsolete scrap out there to meet demand noted there was enough obsolete scrap in the market to meet current demand.

Around three quarters of survey respondents answered in the affirmative, while the other quarter did not see a situation of ample availability.

Several respondents who saw next-month UBC prices as stable also describe the market three months from now as “balanced.”

When you compare the UBC outlook to expectations for the Midwest premium, you see a more diverse set of views. A slight majority expect the premium to remain stable next month, with a nearly equal share looking for an increase and only a marginally smaller share anticipating a decrease.

Even with that dispersion, respondents still cluster around a stable view for UBCs, suggesting cans are expected to absorb basis movements without requiring an immediate change in street prices.

UBC pricing against a firmer Midwest basis

CRU’s assessment at the end of November for the free on board (FOB) UBC merchant price increased by 1.5¢/lb on a midpoint basis from the end of October.

That incremental rise came from a stronger Midwest transaction price, not from any scramble for cans. The Midwest premium climbed nearly 8.5¢/lb over the same period, while the average London Metal Exchange (LME) cash settlement rose roughly 2¢/lb during the period.

The all-in primary price therefore increased far more than UBC bids. Even with UBCs bought as a percentage of that benchmark, the cans did not move in anything close to a parallel fashion.

Class I, II, and III can scrap have behaved differently. Those grades gave up some ground in late summer, then recovered more decisively in November.

The overall picture is process scrap has re-rated more in line with the run-up in the Midwest transaction price, while UBCs have lagged. The survey results largely accept that structure as the base case going into winter.

Class scrap trends and their relation to UBCs

The November price set-up for can-related scrap shows a clear hierarchy. Class I and II designations have tracked the strength in the Midwest transaction price far more closely, regaining or exceeding their mid-year levels.

Class III sits between those moves and UBCs, roughly around a dollar per pound at month-end. That positioning makes sense: Class II is the nearest pre-consumer counterpart to UBCs—voluminous body sheet trim that mills routinely melt into the same product stream—so its uptick essentially reflects an average of the firmer Class I/II moves and the much flatter pattern exhibited by UBCs.

UBCs, meanwhile, barely moved in absolute terms and continued to slip further away from the Midwest transaction price in percentage terms.

From a mill perspective, that pattern makes sense. Process scrap is limited by run rates at can plants and by the design of their scrap systems. UBCs, by contrast, are limited by collection systems and de-coating capacity.

The November spread structure follows directly how each scrap grade responds to a rising Midwest premium. When the Midwest transaction price strengthens, mills lift Class I and II bids because they are the cleanest substitutes for primary metal, with Class II nearing $1.20/lb and Class I trading on either side of $1.10/lb. Class II moves the most, consistent with its 5182 chemistry, its sensitivity to magnesium prices, its smaller production footprint, and the fact that end-stock producers use a higher share of primary metal in their melt mix.

Class III scrap sits below them in a wide 7-cent band across the low-to-mid $1.00/lb range, reflecting its position as painted or decorated body stock trim that reacts to Midwest movements but not as sharply as the cleaner grades. UBCs remain the least responsive grade: de-coating contamination, and melt-loss penalties become more expensive as the premium rises, and mills saw no need to bid for cans amid strong imports and reduced exports, despite the seasonally slower receipts heading into winter.