Workers were lucky to escape without injury the Fire Service said.
"The occupants of the premises are extremely lucky given the force the of the explosion that they weren't in an area that they [could have been] seriously injured or even worse,'' Auckland acting commander Roger Callister told Radio New Zealand.
The fire took about 15 minutes to get under control.
According to its website, National Steel, processes various metals, including aluminium, copper, steel and stainless steel in various forms such as car bodies, whiteware, building materials, cans, and cables.
Owner Roshan Nauhria said staff had told him there was minimal damage to the building.
Although the Fire Service believed an LPG bottle was to blame, Mr Nauhria said it was possible there was still some petrol in a vehicle going through the shredder.
"We check every car and sometimes you miss a petrol tank or something,'' he said.
"When we started we used to have a blast, more or less one every week - now we probably have a blast, one every two months, three months.
"We take a lot of precautions,'' Mr Nauhria said.