Final Thoughts on scrap recycling industry

Final Thoughts: Ferrous scrap market sees decline

Written by Stephen Miller

The ferrous scrap market experienced a sharp decline for March shipments. Prime scrap fell $60-$70/gt while shredded and other obsolete grades declined $40-$50/gt. It seems these prices were accepted in the trade by dealers across the continent.

There was little room for debate regarding the prices this time around, as all signs pointed toward a market decline. The HRC prices had dropped to the extent that steelmakers are contemplating establishing a price floor, regardless of its economic justification. The scrap export markets to Turkey and to the Far East/South Asia have plummeted sharply. Basic pig iron prices have also backed off. With the worldwide steel industry showing lackluster performance lately, a large drop in scrap pricing was inevitable for March. Unlike the steelmakers, the scrap industry cannot declare price floor.

The large drop in prices in some districts has resulted in the scrap industry’s version of the inverted yield curve. Prime grades like #1 busheling and bundles are selling at the same price as shredded or even less. Our colleagues in the financial sector had advised us that the inverted yield curve will result in a recession. So far, they’ve been wrong. But I’ll tell you this: if prime grades keep selling cheaper than shredded, we are headed for an industry recession, as steel mills will demand less scrap due to poor steel demand. I’m not convinced that things will deteriorate to that extent, as this situation typically doesn’t endure for very long. If it does, steelmakers will see an improvement in the residual alloys in their shredded scrap, regardless of beneficiation efforts.

There is another concern about the large dip in scrap pricing this month. Did the mills exhaust their ability to lower scrap pricing by already decreasing them significantly and rapidly leading into April? That remains to be seen. However, the true test lies in how obsolete scrap flows react to a sudden drop in pricing. Recycled Metals Update (RMU) will report on this next week after we get a better picture of the market. Until then, no cause for concern; the world still needs recycled metals.

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