Tendering Scrap Metal Is Independent of Market Health

October 13, 2015 Daniel Verdon

A Weak Scrap Metal Market Does Not Imply You Should Hold onto Your Metal Waste

The recent trend of the scrap metal market makes for grim viewing for those hoping to see significant profits from their company’s metal waste. Despite the feeble market, the supply of scrap metal is by definition inelastic. It is therefore important for manufacturers with scrap metal volume to take into account that they will need to continue running their regular tenders while considering that in this climate they might not get those high figures seen in previous periods.

The Market

Scrap metal being one of the most valuable salvage material is important in the steel production industry with Europe being a primary region in terms of imports. 66% of steel production costs in European EAFs (electric arc furnace) are related to scrap metal inputs. Although Europe is the main user of scrap metal, the main impetus for the low price of steel and scrap metal can be attributed to the slowing down of the Chinese construction sector – which in turn led to the oversupply of steel on the global market. Despite recent calls by the Chinese government to stop domestic steel production, output is continuing to increase signaling the recovery of the steel market to be some way off. If we look at the US scrap steel market, the US being the largest exporter of this material, we see the strong dollar has made itexpensive for European steel mills to import US scrap, which further exacerbates US market oversupply.

Forecast

As mentioned, in the short term, the market does not look as if it will pick up and if Chinese steel production does not decrease compared with today’s output then we could see even lower prices of scrap metal. While there are several major economies still growing at double figures such as India and Turkey, it is not likely to offset the negative impact of the Chinese construction sector. Despite this, there has been an impetus by the US steel mills to construct more EAFs in order to capitalize on the cheap domestic scrap metal so if this takes off in a blast then it could have a small positive effect on the scrap metal market, but you would be forgiven if you accused us of pulling at straws.

Why you should not hang onto your scrap metal?

For one, we just forecast that the price is not likely to increase – or worse still could decrease further in the short term. A more important reason is that the quality of steel deteriorates over time and scrap metal buyers will not buy the material if there is excessive rust – bearing in mind that they may need to store it as well before it goes to the steel mill. Storage costs are also high relative to the value of the material. An additional reason is that you will not see increases in price per ton for more volume offered in this current market – which is already flooded.

Specifics to understand before going to market:

It could be beneficial to separate your metal waste by composition and sell it as separate metal streams

Understand that it may be more profitable to sell locally as transportation costs are high relative to the value of the metal

Scrap metal buyers may prefer small quantities over large quantities

It is a fragmented market

Selling today makes more sense than selling tomorrow

If you are interested in running a tender on Scrap Metal with Elemica, then please contact daniel.verdon@elemica.com.

 

 

 

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