Steel slowdown curbs scrap enthusiasm in US

An American scrap trader was cleaning out his garage earlier this summer. He came across an old grill that he decided to throw out. He wheeled the grill with all its steel components to the curb on that Sunday afternoon. When the trader left for work Monday morning he was surprised to see the grill was still there. When he returned from work Monday evening the grill remained at the curb.

Garbage collection in the neighborhood was not until Wednesday morning but surely a scrap peddler would be making the rounds and collecting steel-intensive items like grills that could fetch them money at the local scrap yard, which in turn would process it and sell it to a steel mill to be remelted.

Nobody ever came for the grill until the garbage men took it after three lonely days. Its value at the scrap yard had likely only fallen a few dollars from more bullish times a few years ago. But this was not about one grill or a few dollars. This was just another sign of the de-incentivized scrap peddler base.

It wasn’t that no active peddler took the time to pull over and load up the grill, it was that there were no peddlers eager to gas up their trucks and make the rounds in the first place. If this grill was left hanging, presumably so were washers and dryers and other consumer goods at the end of their life that make up the US obsolete scrap reservoir.

Unlike many commodities, there is a relatable day-to-day element to the scrap supply pool, like the grill story or driving past a scrap yard and seeing a large pile — or no pile — or hearing stories of people holding on to their cars longer in tough times.

And of course there is the weather. When you can look outside your window and see a snow storm, you know that this often elicits a bullish scrap market response for its potentially huge logistical impact. This resonates with scrap buyers and sellers and, of course, the front line of the business, the peddlers. The same goes for the sweltering heat you feel when you walk outside — another bullish sign for prices because it slows scrap-gathering and processing, thereby reducing supply.

This strong human element in the scrap supply pool is in stark contrast to the often tougher-to-decipher demand side of the equation. You cannot easily gauge finished steel demand. You can listen to anecdotal reports about demand for hot-rolled coil or read about mill utilization rates, but this information does not elicit the type of emotional, immediate response that can occur on the supply side.

Maybe that is why at times it is easy to forget that without demand, scrap goes from being a raw material to just scrap.

The US obsolete scrap price fell $25/lt in June. It was down another $10/lt in July. Despite warnings about the crippling effect these price drops would have on supply, there was no price increase in August to draw more scrap into the system. And then in September, another $20/lt price drop. Flows are off, piles are dwindling, grills are being left uncollected, yet early talk for October is more downward pressure on prices.

When steel mills are running well, one man’s junk is another man’s treasure. When mills are not running well, one man’s junk is still another man’s junk.