Global forces test resilience of recycled metals and steel markets

It appears that both the recycled metals and the steel communities have dodged another bullet with the contract extension negotiated between the ILA and the USMX. The contract was extended until January, at which time, there will hopefully be a long-term contract in place. I believe all parties are relieved that our industries did not have to face this threat given the other challenges on the horizon.

Another bullet we may have dodged is the continuation of severely elevated exports of finished and semi-finished steel from China. Over the last several months, the export of the overproduction of Chinese steel has wreaked havoc on the steel production in numerous countries around the world, but particularly in South Asia and South America. This has negatively affected the demand for ferrous scrap exported from the U.S. and Canada. The Central Bank in China has announced a major stimulus into the construction sector which may have the effect of limiting Chinese steel exports. It’s not a long-term solution but, as I said, it’s dodging another bullet.

In the U.S., we have an election which could change things in our economy. Under a Republican Administration, the participation in decarbonization efforts could be lessened or terminated. It is hard to project what impact this may have on the steel and scrap sectors. The implementation of the Inflation Reduction Act (IRA) may be stymied. Many U.S. mills stand to benefit from the intended aims of this enacted legislation.

Also, the widespread use of tariffs for products imported into the U.S. could be levied. This is an untested and risky step that should be thought through carefully. The U.S. is not the only economically strong country in the world. There will be retaliation against the U.S. and the effect on inflation could be dire.

On the domestic front, the U.S. economic data is still pretty much positive. The inflation rate is under control, at least for now. The unemployment rate inched down as job creation gave us an upside surprise last week. Industrial production is slipping but not to an alarming extent.

Finally, the U.S. has had some major weather disruptions as hurricanes have ripped though and flooded large swaths of the country. There is another catastrophic storm approaching Florida this week. The Tampa area is a major port for scrap exports by both bulk and container. It is also a major port for imports of industrial raw materials. This area is still recovering from major flooding produced by Hurricane Helene. Not only are there many thousands of tons of various debris piled up on the streets of this metropolitan area of over 3 million people, but the many scrap processing facilities in this district are also piled high with white goods and cars to be shredded. It’s troubling to imagine what happens to this material if it’s slammed with 100+ mph winds and high storm surges.

As of press time, the Oct scrap market has not been settled. October is almost a third over. A week ago, many thought the market had over a 50% chance of dropping. This sentiment has changed to strong sideways after seeing the export sector surge in price and the settling of the ILA strike. So, we’ll wait and see what steelmakers decide to do.