What Drives Scrap Metal Pricing?
We all know that prices for scrap metal can fluctuate from time to time. Sometimes there are small shifts in pricing, sometimes there are HUGE shift in pricing and sometimes they remain the same for several months. Have you ever stopped to ponder "What causes this?". The most obvious answer is supply and demand, but there are several other factors that can be in play that we don't often think about.
To start, there are a few things to note before we dive into why the ferrous market changes. A good starting point is to understand that not all scrap steel is the same. According to the Institute of Scrap Recycling Industries which is the governing body for recyclable commodities, there are over 20 different grades of scrap ferrous materials. Each scrap steel grade has to be processed a certain way. Some grades have to be shredded, some need to be torched or sheared, and some need to be baled. The cost for the scrap metal processors to prepare these commodities for the mill is going to affect what the processors can pay their customer. Another item to consider when it comes to scrap ferrous pricing is that not all steel mills are the same. Every steel mill has a unique needs when it comes to the scrap steel that they can incorporate into their final product. This means that scrap prices can be driven simply by their distance from the mill that can incorporate that commodity into it's final product.
So now that we've looked at what goes into pricing scrap ferrous metals on a local scale, here are some of the main factors that can affect scrap steel prices on a national and global scale.
Demand for steel: The overall demand for steel, particularly in industries such as construction, manufacturing, automotive, and infrastructure, has a significant impact on scrap steel prices. When there is high demand for steel products, the demand for scrap steel as a raw material increases, driving up its price.
Global economic conditions: Economic growth and industrial activity levels in different regions can impact scrap steel prices. During periods of economic expansion and increased construction and manufacturing activity, the demand for steel rises, resulting in higher prices for scrap steel. Conversely, during economic downturns or slowdowns, the demand for steel decreases, leading to lower scrap steel prices.
Raw material prices: The cost of raw materials used in steel production, such as iron ore, coal, and other additives, can influence scrap steel prices. If the prices of these raw materials rise, it becomes more expensive to produce new steel from primary sources. This can increase the demand for scrap steel as a cost-effective alternative, driving up its price.
Energy costs: Energy expenses, including electricity and fuel prices, play a role in determining the cost of steel production. Fluctuations in energy prices can impact the production costs of steel, which in turn can affect scrap steel prices.
Scrap supply and availability: The availability of scrap steel in the market is a significant factor in pricing. Factors that affect scrap supply include the level of industrial and construction activity generating scrap, the efficiency of recycling programs, and the collection and sorting infrastructure in place. When there is a plentiful supply of scrap steel, prices may be lower, while limited availability or high demand can lead to higher prices.
International trade and tariffs: Trade policies, import/export regulations, and tariffs imposed on steel products can affect scrap steel prices. Changes in trade agreements or the imposition of tariffs can disrupt the flow of scrap steel between countries, impacting its availability and pricing.
Currency exchange rates: Currency fluctuations can influence the cost of importing or exporting scrap steel. Variations in exchange rates can affect the competitiveness of scrap steel prices in international markets.
When it comes to choosing the right partner for your scrap metal program, always choose the partner that puts integrity and it's clients first.