Scrap Outlook

The Rebound Isn’t Here Yet




The scrap industry is nowhere near where it once was. Prices of shredded scrap steel are down 18 percent this year and down 41 percent since 2012. Unfortunately, it doesn’t look like an industry resurrection will happen be any time soon.

That’s the general forecast that was given at the Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable 2015 held in Chicago, Ill. on Sept. 9 - 11. According to MetalMiner (www.agmetalminer.com) panelists talked ferrous metals (metals that contain iron) trends, specifically how U.S. exports are still way down.

 

Blame China

China is at the top of the list of reasons why the U.S. scrap industry is at an all-time low. China’s demand for metals has significantly dropped. The United States was exporting 5.5 million tons of steel to China in 2009. In 2014 we exported just 200,000 tons. One of the reasons behind this is that China’s construction boom is slowing, decreasing its demand for metals.

According to the World Steel Association, (www.worldsteel.org) Chinese steel demand in 2014 saw negative growth for the first time since 1995 due to the government’s rebalancing efforts that had a major impact on the real estate market. This situation is likely to remain unchanged in the short term and Chinese steel use will continue to record negative growth of -0.5 percent in both 2015 and 2016.

And, while other parts of the globe are growing, specifically developing economies like India, Turkey, Saudi Arabia and Mexico, they won’t make up the China deficit in the short term. China, and other parts of Asia, currently buys about 65 percent of the world’s metal. But, the demand for steel in developing countries is expected to grow by 4 percent in 2016 after growing 2.4 percent in 2015, according to the World Steel Association, which is somewhat of a silver lining. Developed economies, like the United States and countries in the European Union, are only expected to grow by 1.8 percent in 2016.

 

Strong U.S. Dollar

Another factor that is hurting the U.S. scrap metal industry is a strong U.S. dollar. According to the Wall Street Journal (www.wsj.com) the dollar is up 17 percent since July 2015. That has made American waste pricier abroad, forcing foreign buyers to purchase scrap from other strong producers, like Russia.

That’s bad news for an industry that has such a huge impact on the U.S. economy. According to ISRI, the U.S. scrap recycling industry generates nearly $106 billion annually in economic activity, $4.39 billion in state and local revenues, $6.76 billion in federal taxes and $11 billion in wages from nearly 150,000 U.S. workers. Recyclers export processed scrap in volumes comparable to grain, corn and cotton.

If the industry continues to decline, many smaller processors will be gobbled up by larger corporations, like Nucor.

 

Long Term Outlook

According to MetalMiner’s Monthly Index, prices could fall even farther, even though they currently seem to be at rock bottom. The best case scenario in the short term is that they will remain stagnant.

There is the possibility that all the infrastructure built in China during the 1960s and 1970s will need to be overhauled, which would create a renewed demand for metal and copper. But it won’t happen overnight. Plus, China is amassing its own supply of scrap metal from the recent surge in vehicles on its roads.

The good news, if there is any, is that nonferrous metals, specifically copper and aluminum, could see an upturn. Aluminum could see greater demand in the long term as auto manufacturers in North America and Europe add greater amounts to new vehicles, i.e. the 2015 Ford F-150.

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