Infrastructure is a big word, and it brings ample opportunities to the scrapping world; but how will that affect the prices and markets?
Infrastructure Affecting Prices
Bottom line: we’re not expecting to see much market movement when the $1.2 trillion infrastructure bill gets pushed through Washington DC, and here’s why. This bill has so much money in it, but the amount earmarked for many projects that will include copper, aluminum, or steel will not be as much as you think. As of now, they are talking about only $400-700 billion of the actual bill to be spent on physical structures like roads, tunnels, and bridges (if you’d like a good breakdown of what’s in the bill, check this out). While that’s still a massive number, let’s think about how it will be spent, and then you can see where the actual metal used comes into play.
Bridges. Tunnels. Guardrails. Railroads. These are some of the different things that will be worked on through the US over the next few years. Though there’s a lot of metal to be needed in all of those projects, looking at them, there will be more money poured into the labor to make these advances than the actual metal that will be used.
When rebuilding bridges, steel is commonly scrapped, but we have also seen a massive amount of waste when it comes to steel. For example, the old Tappan Zee Bridge in NY/NJ was replaced a few years ago, and instead of scrapping the bridge, they exploded it, and it’s still sitting at the bottom of the Hudson River. We have seen that the price for removing, cutting up, and recycling the steel doesn’t mean labor is involved, and that becomes a major problem.
When you think about the metal that will be needed for these projects, you have to think about tonnage, timelines, and overall price. A lot of the steel that will be used will be made and manufactured here in the U.S. While that is expensive, it also creates better compliance for long-term sustainability and longevity on the bridges themselves. But the price for the new steel will be drastically higher once you factor in things like inflationary rates, labor increases, and transportation to get the new pieces from the factories to country-wide installation.
Prices for Scrap
These large projects will need a lot of metal. Still, the money that will be involved will definitely skew towards more labor than materials, and this is why we are not looking at the scrap markets as having drastic increases due to this infrastructure project(s). Many other factors could affect the pricing of scrap steel, but this will not be one of them. If you want to be able to look at longer-term price increases, we suggest looking more toward manufacturing numbers for large companies that supply electronics, phones, building supplies, or day-to-day tool uses. These demands are more steady and reliable over time and will create a further pricing increase for the metals markets.
Oil will also become one of the driving factors for steel prices increasing or decreasing, and that all depends on things like worldwide consumption and demand. With fewer people traveling in 2020/2021 (hopefully more traveling in 2022), the oil prices have seen dramatic turns that have impacted the scrap markets. We know that transportation costs have changed (and probably will never go lower again) and that has changed how goods travel around the country and around the world. These changes will shift to the taxpayer when it comes to road and infrastructure work over the next few years.
Suggested Read: Why Do Oil Prices Affect Scrap Prices?
If you want to get involved in any of the scrap projects that could potentially come out of the infrastructure bill, you may want to think twice about this. Larger companies will be handling these projects and already have the scrap worked into their bids. For very large projects that could generate a lot of scrap, you will see even the government auctioning off this material to help recoup money for the taxpayer. If you are in a position to compete against dozens of other people and companies, you may have access to these projects and the scrap that is involved. We don’t want to burst your bubble, but what we’re trying to tell you is: do not bet on seeing much of this scrap coming into the market for anyone outside of publicly traded scrap companies or those who are doing the infrastructure work (and that includes 99% of the scrap yards in the country).