Welcome Note: Overriding Characteristics

Supplement - Scrap Metals Supplement

January 7, 2013
DeAnne Toto

DeAnne Toto

Markets for many scrap metals were characterized by volatility in 2012. Many analysts have forecasted a similarly volatile 2013, particularly for ferrous scrap.

According to Standard & Poor’s Rating Services Associate Director of Natural Resources Megan Johnston (the author of “Softening Steel,” p. S8), the ferrous scrap market will experience volatility in the year ahead, largely because of erratic swings in steel demand and low iron ore prices. These factors are further influenced by China’s slowing economic growth and the recession in the euro zone.

However, the announcement from the Chinese central government regarding plans to increase electric arc furnace steelmaking capacity in that country was viewed as good news by scrap dealers throughout the world who could help to supply the ferrous scrap needed to feed these furnaces.

China, the largest consumer of copper scrap, has been less active in its purchasing as 2012 comes to a close. The country’s economy, while still robust by Western standards, has been slowing, as has its consumption of the red metal. Despite this, copper scrap dealers based in the U.S. are still optimistic heading into 2013.

Stainless steel and nickel scrap also were not strangers to volatility in 2012. With an oversupply of production capacity, the jumpy nature of the nickel pricing, the shifting of supply logistics and stagnant economies throughout the world, a number of scenarios are possible for stainless steel and nickel in the year ahead. However, many sources contacted for the article “A Moving Target,” p. S30, say they believe the market may be stronger in 2013 than it was in 2012.

For many traders and business executives, however, optimism does not seem to be the default emotion in the face of uncertainly. The fortunes of many of these metals and the industries that consume them likely will be influenced by how the U.S. legislature navigates the “fiscal cliff” that looms menacingly in the distance as I write this. With the uncertainty regarding future U.S. fiscal policy, many businesses have sidelined themselves until they have a clearer sense of the game and the rules that will govern it. Therefore, many have adopted a wait-and-see attitude that has interjected weariness into many markets as 2012 comes to a close, as it did during the U.S. presidential election in the fall of the year.

However, as many scrap dealers know, change is inevitable in secondary commodity markets. And, as the old saying goes, “The more things change, the more they stay the same.” The overriding goal remains the same for scrap dealers, regardless of the metals they handle, each year: Protect your margins to the fullest extent possible.