The saying “scrap is bought, not sold” is a recycling jewel with many facets. Beyond its meaning for profit margins, the COVID-19 era has served as a reminder that if yards don’t have scrap to acquire, downward price pressure will only serve to make matters worse.
Mid-March anti-pandemic restrictions were followed in early April by mill buyers’ reluctance to boost their scrap inventories in an uncertain environment. Although the April mill reluctance led to price drops in the $25-to-$50 per ton range, the May buying period witnessed mills up their bids to procure the meager supply that remained.
The scarcest commodity in May, judging by May Fastmarkets AMM Midwest Scrap Index pricing, was prompt scrap (or busheling) produced at stamping plants and other manufacturing sites. The idling of the North American auto industry caused No. 1 busheling to break the $300 per ton ceiling for the first time since June 2019.
“A scrap recycling facility is only able to sell and ship out as much processed scrap as it can get unprocessed scrap into the yard.” – Nathan Fruchter, Idoru Trading, Lawrence, New York
By late March, scrap buyers reported declines in ferrous scrap volume of anywhere from 35 percent to 70 percent. The highest figure came from a Detroit-based recycler who saw the auto industry shut down in days.
In early and mid-May, news on the supply side was slightly better—and scrap buyers were happy for even the modest improvement. “Business wasn’t horrible; it was still plugging along in April,” says a New England-based recycler. “Now, prices have increased a little, and the weather has gotten better. Business is picking up a bit more in May, and we’re hoping for a continued climb.”
The scrap buyer in Detroit sees little rebound for the prime grades. “Inbounds are still 20 to 25 percent of what they normally are,” he says. “We did start to see a little pickup in business [in early May], and the governor is allowing manufacturing to resume May 11 and auto plants May 18,” he says.
The buyer’s optimism is tempered in terms of seeing a strong resurgence in supply. “I think we are in for a slow and long road back. I do not anticipate prime grades to return to normal until the first quarter of 2021.” Even in the third quarter of 2020, the buyer says he sees “prime scrap running at 33 to 50 percent” of normal.
A recycler in the mid-Atlantic region, like the one in New England, procures a lot of obsolete scrap. From his perspective, “We saw collection at 50 to 60 percent our pre-COVID-19 levels in late March and April. There has been some mild improvement in May so far.”
Like the Detroit buyer, though, he sees little hope of a quick supply resurgence. “Local HVAC and electrical contractors just aren’t working. Normal spring tuneup and maintenance work at the residential level is very slow. Our state is not yet reopening in any big way since our infection and death counts are still at peak levels.”
The supply drought and subsequent price rebound are not surprising to veteran ferrous scrap trader and industry consultant Nathan Fruchter of Idoru Trading, Lawrence, New York. In mid-April, Fruchter tells Recycling Today the conditions are in place for a ferrous scrap supply deficit.
“Scrap is sourced very differently than most other commodities,” he says. “Scrap is a product of affluence. When the economy does well, we spend more, we consume more and we produce more scrap. But the economy has not been doing well since early March.”
Many commodities analysts, investors and even raw materials buyers may “fail to recognize that ferrous scrap is a very different commodity than most others and, therefore, does not react the same way as most others do,” Fruchter adds. Tying into the “scrap is bought, not sold” motif, he continues, “A scrap recycling facility is only able to sell and ship out as much processed scrap as it can get unprocessed scrap into the yard. If people are not throwing out household goods or getting rid of their old cars and buying new ones, or if old structures are not demolished and being replaced with new ones, then the flow of scrap slows down and creates a shortage.”
Fruchter adds, “It’s a very physical commodity; one that depends on human behavior and consumption and not on the owners of a mine or a mountain deciding how much to mine and produce.” Not all is stable on the demand side for ferrous scrap either. Fruchter cites a slow restarting process for furnaces that have been idled (especially basic oxygen furnaces, or BOFs) and some difficulties in the export loading process. Bulk loading of ferrous scrap being exported has proven less problematic, he says. “Loading a bulk ship with 30,000 tons of ferrous scrap happens outdoors with far less staff required, and staff are located very far apart from each other. “It’s a very different scenario loading containers,” Fruchter adds. “Your working space is much smaller.”