Prices of scrap metal define the recycling rates - if the prices fall, the rates of recycling slow down and it becomes difficult for the companies that collect scrap metals to make profit. In fact, this is happening now, as the scrap metal industry is experiencing downward price movement and is said to have hit bottom. Over the past year in the London Metal Exchange copper fell 26 percent to $4,609.50 per metric ton, while zinc was off 29 percent to $1,568 and aluminum fell 20 percent, to $1,473. In fact, prices for metals have been falling for a number of years, but 2015 was a catastrophe for recyclers and scrap sellers. In August 2015, car scrap metals in Wales cost GBP 50 - GBP 60, whilst the figures for 2014, 2013 and 2012 were GBP 100-GBP 110, GBP 120-GBP 125 and GBP 140 respectively. As Joe Pickard, chief economist at the Institute of Scrap Recycling Industries in Washington, D.C., explains, the fall in prices is caused by a strong dollar that makes exports less competitive, the slowing Chinese economy, and abundance of such goods as iron ore, which can be used in steel making instead of reused scrap.
The month of market crashes in scrap metal industry
History shows that prices go down during October markets. Indeed, the prices have dropped overall in an October market in 9 out of the past 10 years, and thirteen of the past fifteen years. The only exception was the year 2004 when the prices did rise across the board. Last year was not any different with grades losing $40-$50 on average. No wonder that by the mid September of this year brokers and mills assured the sellers that October was going to be down. The scrap metal industry in North America east of the Rocky Mountains has already dropped an average of $70 since August, so it seems to be returning to the 5-year lows registered in the end of last year. Also, prime grades dropped $30 for two consecutive months in such leading markets as Pittsburgh, Cleveland, Chicago and Detroit. As a result busheling and bundles cost less than fifty dollars above than November lows last year. "I've seen high markets. I've seen low markets. For some reason, this one feels the worst of them all," says Jeffry Gertler, CEO of Scrap Metal Services.
Staff reduction in scrap metal industry and decrease in the number of mills
A lot of firms have cut their employees or closed, and some are accumulating scrap metals waiting for the market to improve. For example:
- Pacific Steel and Recycling’s Great Falls, Montana scrap yard has just seven workers left, which is half as much as it had last year. The firm has also shut down some recycling plants in Lewiston and Williston.
- Gertler's company closed four facilities focused on automobile scrap in the area last year, depriving almost fifty people of jobs.
- Sims Metal Management, an enterprise with the headquarters in the New York City, liquidated its metal-collecting facility on the North Branch of the Chicago River several months ago.
- Pure Metal Recycling had even more dramatic situation. Reflecting the overall scrap metal industry trends, it has shut seven locations all in once in early December.
"There's going to be a continued thinning of the herd," anticipates Brad Serlin, president of Cicero-based United Scrap Metal.
Exports of scrap metals dropping
It is said that there isn't any sign that scrap exports will grow. In the first half of 2015 the exports of scrap metals from the USA dropped 4.7 percent as compared to the first half of 2014. This year the exports of scrap metal are running nearly 15 percent behind 2015 levels. Shipments outside the country began to drop in the middle of the summer and have not yet shown any recovery. Consequently, scrap is piled up in the yards, as the prices for export are not good enough. Furthermore, the flow of scrap into the yards is predicted to be down.
Predictions about scrap metal industry trends
Both buyers and sellers believe that the markets will go down or, in the best case, sideways in November. With the decrease in vehicle sales and the slowing of the construction season, there is going to be less demand in metal scrap next month. However, according to the optimistic forecast, the scrap metal industry then will begin climbing again around the first month of the next year. Patrick Kons, vice president of scrap operations for Great Falls, Montana-based Pacific Steel and Recycling, thinks that the prices for metal scrap have bottomed out and will begin to slowly improve over the months ahead. "But it took 14 months for the prices to fall so much and it might take that much time or longer for them to come back," he says.