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Scrap Market Report

The Scrap Upheaval

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MCN Editor Beth Gainer Scrap pricing is chaotic for various reasons, including its trading cycle and unstable global events.

Scrap is a roller coaster commodity of a sort, thanks to volatile pricing partly caused by monthly trading. While the monthly trading dynamic is somewhat chaotic, according to Greg Dixon, “that’s the way it’s been done.” He is the CEO of Smart Recycling Management, Nicholasville, Ky. 

So concurs Lee Dezzutti, vice president of business development for AMG Resources, headquartered in Pittsburgh. “As scrap sourcing, processing and delivery is not an instantaneous process, steel mills typically buy scrap on a monthly basis to cover their needs for the next 30 to 45 days,” he explains, adding that the pricing of ferrous scrap mimics this pattern, and buyers and sellers negotiate the new price each month. AMG Resources is a large recycler of ferrous and nonferrous scrap metal.

Scrap pricing is also subject to several variables, such as domestic mills’ short- and long-term demand, export market demand and pricing, the short-term availability of scrap and transportation availability. “As a general rule, pricing is the mechanism that influences the supply of scrap,” says Dezzutti. “The higher the market price of scrap becomes, the more scrap is available; the lower the price becomes, the less scrap is available.” 

He adds that monthly price swings can vary by as much as 10 percent or more, although they tend to be more stable. Year-over-year price changes can often move up or down 50 percent or more, he notes.

The past few years have seen ever-increasing prices for scrap. According to Frank Cozzi, CEO of Cozzi Recycling, a full-service scrap metal recycling yard and warehouse in Bellwood, Ill., scrap is probably at its second highest pricing level in history. “I think the steel industry has fantastic markets and fantastic consumption,” he says, “and the more they produce, the more scrap they need and the higher the prices go.” 

Joe Pickard, chief economist and director of commodities at the Institute of Scrap Recycling Industries, Washington, agrees scrap has been particularly volatile over the last year, because the pricing on scrap is connected in some ways to the pricing on primary steel and related products. In 2021, the U.S. witnessed skyrocketing steel prices that carried over somewhat to scrap pricing.  

Dezzutti observes “scrap prices move with steel prices, so when steel prices are high, there’s demand for steel, and when there’s demand for steel, then typically there’s demand for scrap.” In the past two COVID-affected years,  steel prices accelerated significantly more than scrap prices. “The change in the price of steel outpaced the change in the price of scrap by a wide margin, which is not unusual. Usually, steel prices rise a little more aggressively than scrap prices do, but for 2021 in particular, that delta was pretty large.”

A direct correlation between scrap and steel pricing doesn’t always exist, according to Dixon. For example, while scrap pricing has usually followed high steel prices, the former has come down somewhat during the first part of this year. 

Regional Woes
The uncertainty that surrounds scrap does not just entail pricing; it is also regional in nature. “Steel mills in the South have just been going gangbusters and helping the scrap industry down there,” says Cozzi, adding that in the Midwest, however, operating issues abound – steel mill shutdowns have affected the local markets, and a few steel mills have had furnace outages, which have impacted what mills are willing to buy. 

With his business in Illinois, he is well aware of the state’s local problems, as well – a huge challenge involving automobile shredder General Iron, which was bought out by the Reserve Metal Group. The company relocated from the north side of Chicago and built a plant on the south side of the city. Chicago Mayor Lori Lightfoot blocked the permit on the scrap plant because the community perceived it as a clear and present danger. 

“Even though they’re my most fierce competitor, I think that what happened to them is deadly wrong. The plant has the most advanced technology in the country,” says Cozzi, adding that blocking the permit is displacing many jobs. “It’s the same old story: nobody wants recycling in their backyard. I don’t think they understand the good that recycling has done.”

And beyond the backyard, global issues loom.

The Russia and Ukraine crisis has caused instability around the world, with a ripple effect on global scrap pricing and availability. Ukraine is a major shipper of scrap, pig iron and other products into Europe, which will obviously stall. “I guess the hundred dollar question is, for how long?” Dixon asks. 

If pig iron suddenly becomes less available, the mills will compete for it, causing its price to rise. And he believes the price of prime scrap, as well as plate structural and heavy melt, will follow suit. “Here in the United States mills use pig iron instead of busheling when they can. So if they can’t get pig iron, they’ve got to use busheling,” he says. “If the demand is going to increase, the supply right now is not very elastic.” He says the war in Europe understandably makes predicting the future difficult. 

Like Ukraine, Russia manufactures and exports steel, scrap and pig iron. In fact, Russia and Ukraine are two of the largest exporters of pig iron in the world, says Dezzutti, adding that Russia also exports scrap and energy as well. The ongoing war, and the sanctions placed on Russia, have the potential to easily disrupt steel, pig iron and scrap and energy.

He predicts that, in the short-term, demand for steel and scrap will rise in the U.S., thus raising prices for these commodities. And he believes more of these commodities will need to be produced in the U.S. 

“Russia and Ukraine are important players in commodity markets, and energy markets in particular,” says Pickard, adding that for certain metals the conflict would limit exports from Russia, which is a significant steel producer. In addition, Russia also produces a large amount of nickel, which is used in stainless steel. “So we can see prices actually increasing if we take a piece of that global demand out of the equation,” he says.  

Scrap on the nonferrous end has also been volatile. “Copper has gone up five or six cents a day, and aluminum has had a great run for the last year,” says Cozzi. “The Russian situation is just going to make everything more volatile, and we’re going to see prices continue to increase until something is done to control that madness.” For March, he had also predicted ferrous scrap prices would skyrocket – from $50 per ton to $100 per ton.

The Importers
The U.S. is the largest exporter of scrap in the world, shipping approximately 15 to 17 million tons per year of ferrous scrap over the past several years, according to Dezzutti. Dixon notes that Turkey remains the largest overseas market for scrap exports as it supplies rebar for the vast majority of the Middle East. 

But Turkey has experienced instability because of currency issues. Although the country remained at the top of the overseas importer list in 2021 with 3.5 million gross tons shipped, the U.S. shipped 15 percent less ferrous scrap there, partly because of the decline in the Turkish lira against the U.S. dollar. The decline made our exports less competitively priced against material from other locations in Europe, Pickard notes. Additionally, the Turkish financial system is under some strain, impacting the domestic economy. 

Other countries are faring better with scrap imports. “Mexico continues to be a strong buyer, and Vietnam and Taiwan have picked up quite a bit in recent years,” says Dixon. Pickard points out that as Mexico’s auto production has come back online, mills’ demand for scrap has increased. He adds that the U.S. did have growth markets in 2021 from Vietnam, Bangladesh and South Korea, as well as Latin American countries such as Peru, Ecuador and Brazil. In fact, he points out U.S. scrap shipments to Latin America increased 50 percent in 2021 compared with 2020.  

“On the ferrous side, about 80 percent of everything we process goes to domestic consumers, and typically about 20 percent goes overseas,” says Pickard. “And so, the vast majority of what steel mills are consuming in the United States is domestic material.” 

Other Challenges
“Supply chain issues such as availability of transportation and equipment in particular continue to be a challenge for the industry,” says Dezzutti. “Transportation of material is a significant and growing challenge for the scrap industry; specifically, a shortage of railcar availability as railroad companies have reduced gondola fleets, and a shortage of truck drivers for truck deliveries.” 

And as is the case in other industries, the scrap industry suffers from labor shortages. Dixon says that besides truck driver shortages, many scrapyard employees have a distaste for working in the scrapyard in all sorts of weather. Cozzi Recycling has made significant headway toward recruiting despite the obstacles, with the company filling most of its positions during the last 60 days after experiencing challenges during the height of COVID.  
 
“It’s been really difficult to hire new employees and retain them just because labor markets are so tight right now,” Pickard says. “And then logistics and transportation are incredibly difficult as well – whether by rail or container or truck.” He adds that the automobile chip shortage “has constrained manufacturers’ production, which constrains their steel demand and scrap demand, too.” 

Among other uncertainties hovering over the market is how much and when the Federal Reserve raises rates in response to inflation, Pickard says. Such a move can have a significant impact on commodity markets. 

Despite all the instability surrounding scrap, there has been a rebound in the demand for U.S. ferrous scrap. Pickard says that, in particular, the second quarter of 2020 was difficult because the coronavirus shut down so much manufacturing in the United States and overseas. “Then last year we saw a significant rebound in overseas demand for U.S. ferrous scrap, and that goes to the global economic recovery – that increase in global steel production,” he says. “So on a quantity basis, we saw ferrous scrap exports go up; ferrous scrap exports were just up 5 percent in volume terms last year, but if you look at it in dollar terms, they actually increased 60 percent, just because of the big increases that we saw in pricing, as well.”

Despite the challenges and unknowns in the scrap industry, Dixon is glad to be a part of it. “It’s such a great and unique industry. There’s still opportunity for entrepreneurship, and that’s a big plus, too.”

And there will be a continued need for scrap. “As U.S. raw steel production continues to shift from ore-based steel production to scrap-based production, a higher percentage of steel production will come from scrap,” says Dezzutti, anticipating there is a lot of EAF capacity that will come online in the U.S. over the next few years. This bodes well for the scrap industry. 

Dixon says scrap companies, like most businesses, are out to make a profit, and that while recycling is beneficial to the environment, that’s no reason to get into the scrap industry. “I always laugh when people say, ‘Well it’s a green industry,’ he says. “Recycling is like any other business; there’s only one green, and that’s money.” 

[Caption:]
Scrap is a volatile commodity, subject to a monthly trading cycle.  (Photo courtesy AMG Resources)