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Sluggish Economies Abroad Pressure U.S. Scrap Prices

Declining metals prices are pinching profitability for scrapyards.

Scrap consumers are paying them less but yards are forced to pay their customers more to get them to sell in a deflated market.

“When prices tend to come off there’s less incentive for people to bring materials into the yards because they’ll get less money for it,” said Joe Pickard, economist for the Institute of Scrap Recycling Industries (ISRI).

Metal prices have dropped as overseas demand has softened due to slower economic growth abroad. Export prices have also declined as the U.S. dollar has strengthened in comparison to foreign currencies.

As of Sept. 30, U.S. exports of all scrap commodities had decreased 12 percent year-over-year while the dollar value of imports had increased by 5 percent, according to the Nov. 7 issue of ISRI’s Friday Report, a weekly compilation of economic, commodity and scrap market highlights for the trade group’s members.

“Because there’s more capacity to process materials, people have to bid more to get materials to feed the shredders,” Pickard said. “When the prices you pay rise and the prices you get for selling are softer that cuts into your profitability.”

Processors have added and upgraded shredders in recent years to cut their processing costs. “It’s a race to the bottom of the cost curve,” Pickard said.

With a net gain of 12 installations, the North American shredder market expanded by 4 percent in the past three years, bringing the total to 365 shredders, according to an article in the Sept./Oct. issue of Scrap magazine, an ISRI publication.

Scrap Publisher Kent Kiser wrote in a blog post on ISRI’s website:

Changes in the number, size, type, and geographic location of shredders not only indicate trends in the shredding niche but also can suggest the overall health of the scrap industry. From roughly 2001 to 2010, for example, growth in the installation of large shredders was a sign that processors wanted to shred more scrap that previously was sheared and boost their throughput tonnage to meet higher demand for low-residual frag. In more recent years, the large-shredder trend has slowed, and smaller shredders have gained popularity by allowing operators with modest input tonnage—and more limited financial resources—to enter the shredding fray.” 

Consumption should increase as economies strengthen in the U.S and abroad. “It’s much more of a global marketplace for scrap today,” Pickard said.

Though U.S. policy makers are scaling back monetary stimulus, foreign counterparts like the Bank of Japan and European Central Bank are dialing it up as they seek to jumpstart their economies. Pickard said, “We’re still not firing on all cylinders but compared to other economies we’re doing pretty well.”

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