Metal market

The scrap metal market remains strong

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The lumber shortage has made headlines in recent weeks as manufacturers and homeowners scramble to find the materials they need so badly.

The same can be said for steel, as it faces a supply shortage in the United States, with prices soaring and attention turned to the recycled metals market.

Thomas Hopkins of said US tariffs on steel and aluminum have a direct effect on increasing demand for these materials.

As Hopkins explained, as many US-based steel plants were shut down during the pandemic, the supply of steel has not been able to catch up with the massive increase in demand. Since August 2020, steel prices in the United States have increased 160%.

“In order to meet this demand, the importation of steel and aluminum is becoming more common as production of these materials in the United States is just starting to increase,” Hopkins said.

Tariffs on steel and aluminum are also hurting many companies as they are unable to remain profitable with the increase in taxes on these materials. This effect can also be felt in the automotive industry. Electric cars are becoming more and more popular, but many are unaware that these vehicles require six times more minerals to produce than their combustion-engined counterparts.

“Metals, such as lithium and cobalt, are needed to produce these massive batteries that electric vehicles depend on. This trend has caused massive spikes in many metals including lithium and molybdenum, peaking at 91.4% and 114.89% respectively since the start of 2021, ”Hopkins said.

Bruce Slosse, president and CEO of Vendavo, a global provider of optimization and price management solutions, said during lockdowns workers are often told to stay home, which usually means the primary production and dismantlers find it difficult to keep up with production figures.

“For those who could produce at their usual pace, with reduced demand from their customers, they had to cut production when inventory levels ballooned,” Slosse said. “This is on top of all the problems caused by the logistics and transportation restrictions caused by the pandemic.”

As the economic stress of the pandemic eases, it is sometimes difficult to ‘restart’ the workforce in parallel with shortages or excess of materials needed for production. And again, transportation constraints remain as supply chains rebuild.

So what is the impact on the scrap metal market? Mike Petruski is Managing Director at B. Riley Advisory Services. Petruski leads the company’s metals and mining advisory services business in the valuation of ferrous and non-ferrous metal inventories, fabricated metal products, and machinery and equipment assets. With over 30 years of specialization in the industry, Petruski has an in-depth knowledge of price trends in the international metals market and works closely with asset lenders, investors and private equity groups on credit facilities. Complex syndicated ABL credit and valuations needed to expedite these transactions.

In the short term, Petruski said, scrap prices are expected to remain high in 2021, with obsolete ferrous prices strengthening as factories use first-rate sources. Additionally, due to some premium shortage due to manufacturing plant closures earlier in 2020, obsolete scrap has seen increased use in factories and is expected to remain so as long as demand is strong downstream.

The status of the metals market may also mean an expansion of discounts from the LME / COMEX preferential prices for non-ferrous materials. “The out of control prices for non-ferrous metals that we’ve seen this year, especially in aluminum, when you add in the Midwest transaction premium, almost certainly means the scrap discounts will be higher than usual,” he said. said Petruski.

Aside from the impacts of the pandemic, other issues are at play, affecting the scrap metal market. One problem is quite simple: Cars are on the road longer, which means less raw material for shredding.

In addition, the continued expansion of the Electric Arc Furnace (EAF) means increased demand for scrap metal in the near future and decarbonization of factories – less integrated factories in the future mean greater consumption of scrap for EAFs. “said Petruski. “In addition, China has re-entered the world market and now imports scrap metal and has relaxed import restrictions on non-ferrous scrap, so that the export market continues to be an attraction for the hardware. ”

While there is a shortage of metals in the near term, Petruski said it is expected to balance out in the future. The demand for steel for automobiles, including road trucks and trailers, recreational vehicles, household appliances and infrastructure construction, is expected to be strong nationally through 2021.

“This, along with strong export demand from Turkey and India for heavy fusion steel (HMS) and shredded scrap, has caused a shortage of supply in the market. All manufacturing industries are catching up with their supply. When demand returns, we will see the supply balance, ”said Petruski. However, future shortages could come into play as the capacity of electric arc furnaces increases. Mini-steel mills like Nucor and Steel Dynamics operate FEA which mainly consume steel scrap unlike integrated steel mills with blast furnaces which require coke, limestone and scrap (or DRI or HBI).

“Today, over 71% of domestic steel production comes from FEA, but the amount of good manufacturing scrap, the bushel, has not kept up with demand,” Petruski said.

According to Hopkins, prices for scrap metal and metals will continue to rise until US steel production meets demand or tariffs on steel and aluminum are reversed.
“Tariffs have the opposite effect of their destination. Growing demand for these materials is pushing companies to import finished products created from steel or aluminum rather than manufacturing them in the United States to avoid tariffs, ”Hopkins said.

For the scrap metal market, the future looks very promising overall. As Hopkins pointed out, with recent green energy trends, the shift in consumers to products made from recycled materials, and the rise in prices of non-recycled ferrous and non-ferrous metals, manufacturers will begin to turn to recyclable waste to meet their demand for productivity.

This is especially true for electric vehicle manufacturers who buy massive amounts of very expensive materials, ”Hopkins said. “We see the S&P GSCI Industrial Metals Index increase by 17.5% year-to-date, indicating that there is serious and sustainable growth in the metals industry, and in turn, the metal industry. scrap metal and recycling. “

Slosse added that the long-term implications are intrinsically linked to the growing demand for steel and copper, especially if the current infrastructure bill becomes law, along with other metals critical to the electric vehicle boom.

“The production capacity of primary metals will continue to increase, but due to the high capital intensity of these assets, investments will tend to reduce risk – a little slower than demand to ensure full use of the assets in order to reduce the risk. ‘Achieve ROI and payback targets,’ Slosse said. For recyclers, it also means that the scrap metal markets will be good for high prices, but they will need to have business agility to pivot on short-term and locally important exceptions.

“If your local market has new production capacity coming online – whether primary or smelting / recycling – plan accordingly,” Slosse said.

Recyclers should also keep in mind that the current shortage is likely more of a momentary supply issue due to the impacts of COVID and the economic recovery.
“The short-term shortage in some markets is due to transportation issues, including a lack of trucks, railcars and shipping containers,” said Petruski. “But in the long run, with the increase in domestic capacity from new FEA production, there may soon be a persistent scarcity of scrap compared to what has been the historical supply record.”

Published in the August 2021 edition