We’ve talked about tariffs multiple times in 2018, but we wanted to go over the cause and effect of what has been happening since they really got instituted. Many countries have had great pushback on the US, but one thing that we have seen is the openness of countries starting to work together to get better trade deals put together.
With the tariffs going into effect we have seen scrap steel prices during the summer of 2018 taking a big hit with the markets down anywhere from $50-100 per ton.
The range has to do with the area that you are selling scrap to in the country as well as the different grading of materials. Some steel shredders have the ability to have some of the pricing on light iron and cars to be a little less than other scrap yards, but a lot of people do not have the option of shredders locally so the price hits could be even worse.
Tariffs = Lower Scrap (so far…)
The steel and aluminum producers overseas have seen the tariffs hitting and the only place for them to magically produce money to cover the 25% tariffs on steel and 10% tariffs on aluminum is from scrap. Yeah, it sucks to hear it but it what has happened and here is how it is shaking out.
These large tariffs are being pushed to the scrap portion of the business and that is one of the primary reasons that we have seen such a downturn overall. The furnaces, smelters, and scrap buyers like shredders have felt the pinch of the tariffs hit hard and the pricing of new steel products has drastically increased because of it- but the increase from the tariffs punched the scrap metal world hard.
With so much uncertainty in the markets because of the tariffs, we have seen countries like Turkey and China lowering their buying expectations on scrap and that has lowered a lot of the pricing as well.
Expectations Can Lower Scrap Prices?
Hard to Explain – But It’s True
It is hard to explain to companies that buy raw steel and aluminum stock to produce products for a living that there is a large decrease in the scrap markets- but let’s try anyway.
All of the people that buy raw stock have seen their prices increase (because of the tariffs). Ok, that is easy to understand and then easier to explain to their customers that are buying new products from them. What is not easy to explain or to understand is why the machine shop and producers prices have gone down on all of their scrap.
We have reached out to large producers of scrap metal that sell 200-300k lbs a month in scrap and asked them what their initial reactions to seeing lower scrap was- and angry was the answer. Many producers of scrap could not figure out this reverse approach because the last 20 years have shown that if raw products go up so do the scrap prices.
This reset in the marketplace from the tariffs have caused the exact opposite effect and have really thrown people into a tailspin. Here in the summer of 2018, the overall US economy is very busy, unemployment at historic lows, and there seems to be more scrap on the market then there has been in years. Yet, the companies selling the steel and aluminum are getting massive cuts in their scrap return which many of them factor into their balance sheets.
The Truth Hurts
Many people do not want to accept that these market swings are the truth, but with the market swings like they have been doing, we really don’t expect too many great things in 2018. These producers of aluminum and steel in the US are seeing all of their profits increasing, and with that, the overseas metal producers are seeing all of their profits decreasing.
To combat the decreasing profits they needed to make up for the tariffs that are being imposed on them if they want to be able to continue to sell their metal products into the country. This is one of the primary reasons that scrap has been hurt in 2018 and will continue to be hurt until the US and all of the primary steel and aluminum vendors are able to agree to more fair trade practices for their countries.
This has been very different from other times where the metals markets suffer and so does scrap prices, but with the economy on full speed in 2018 and raw steel/aluminum prices increasing we have seen the exact opposite with scrap.
Wishful Thinking
We hope that this gets settled quickly, but knowing that fair deals for both sides often take time (look at any divorce- takes time, neither side is happy but the goal is a fair deal). If we are able to have the market calmed down by June of 2019 that will be a great goal.
