Iron Markets Spook Scrap Dealers

Spooky Scrap Iron Markets

The bottom fell out of scrap iron markets this week spooking scrap yard operators from San Diego to Seattle.  Stock market analysts downgraded Schnitzer Steel Industries, Inc. further scaring scrap iron processors.

Some scrap dealers near sea ports continued to buy HMS 1, 2, cast iron shredder bales and sheet metal. A few buyers tried to prop up prices through the end of the month for preferred customers, other dealers simply stopped buying scrap iron.

According to American Metal Market, LLC, US west coast scrap yards are piled high with excess iron inventory and clunkers. They're running out of space to store it.

With limited smelting capacity in the US, the majority of west coast scrap iron is sold and shipped to Asian markets, such as China, India, Viet Nam and Korea.

Stubblefield Salvage and Recycling, LLC in Walla Walla abruptly stopped buying scrap iron this past week after three consecutive price reductions. The abrupt halt of buying and processing more than 200 tons of scrap iron each week caused scrap collectors to scramble and look for other buyers. "It was costing us more to ship the scrap iron to market than we were making," stated CEO Lily Stubblefield-Shoop. "We are not closing our operation; we are simply shifting our emphasis from scrap iron to other areas."

Old time scrap collectors are accustomed to winter slow downs and and lower seasonal scrap metal prices.  Don't count on the same-ol', same-ol' this year.  Future business cycles and outcomes are apt to be very different.

In past years, many scrap dealers speculated by purchasing scrap iron when prices dropped and sold later the following year when demand and prices usually increased.  Many of the feeder scrap yards still have iron inventory left over from two years ago when prices were at all-time highs.

Times were different when the US was the leading industrial and manufacturing economy in the world. In the new world economy, the US is merely one of several industrialized nations and at a severe disadvantage due to higher labor costs, fewer plants capable of recycling used iron, tougher environmental restrictions and sophisticated competition from emerging economies.

Today, US scrap iron processors are --especially in the Western United States-- at the mercy of Asian buyers.  When Asian buyers offered substantially lower prices this month, US sellers had few alternatives and accepted.

Some dealers are hopeful the federal stimulus package will spur increased demand and higher scrap iron prices.  This is not likely to benefit US scrap iron dealers or collectors. If demand for new and recycled steel does increase and prices go up, more than likely the US will have to buy much of it from overseas foundries.