An optimistic view on scrap steel prices
Scrap metal industry experts do not expect the decline in scrap steel prices that widely characterized 2019 to reoccur in 2020. While domestic recyclers should not anticipate rates to quickly return to the $192 per gross ton national average of January 2019, they should likely see a modest price swing to recover from the significant drops during October and November.
Smaller recyclers who were burned by a year of continuous price declines are looking to bounce back from losses on inventory and minimally effective margins. Although it’s not ideal, less financially sound companies are ready to fully exit the industry via mergers and acquisitions. Consolidation is certainly something that larger companies looking to expand their geographic footprint are interested in. However, the asking prices of most companies looking to dump their assets are simply too high.
For the first time in eight months, scrap steel prices increased nationally, a mere 0.74 percent. November’s post reported that the average price of scrap steel was $136/ton, however, not much has changed since January’s price has not yet even returned to that yet. Looking year-over-year, the market has fallen just over 29 percent as scrap steel on average carried $56 more in value in January 2019 than it does now one year later. In regard to regional price change, it is important to note that four out of the five regions’ average prices increased. The West’s average price per gross ton, Zone 1, increased by three dollars for the first time in exactly a year, ending the third-longest monthly decline streak.
Why the steel tariff is hurting U.S. steel workers
Last month, it was reported that as many as 21,000 automotive workers in the state of Michigan alone had been laid off followed by a 23.6 percent decline in total employees. This significant drop in employment was largely due to the 33 percent decrease of domestic export value to China, which resulted in a $1.2 million loss in vehicles and parts in that month alone. This month, it’s U.S. steel employment that is now on the hot seat. In August 2018, President Trump told union workers that his 25% tariff on steel imports was going to “reinvigorate and expand U.S. steel”. This estimate is now in question following U.S. Steel Corp’s announcement that they intend to layoff over 1,500 employees later this year in that same Michigan area.
Industry experts are obviously pointing to the dramatic drop in steel prices and excess inventory. Steel prices shot up after Trump made this announcement, only to plummet once older domestic steel plants restarted their production and tariff-exempt foreign steel continued to make its way into the U.S. Ultimately, the steel tariffs did not do what they were designed to do. Another factor affecting U.S. steel is the “minimill” steel plants, or scrap metal recyclers. The process is cheaper and less labor intensive, although it’s typically not as high grade as the virgin steel that comes from iron ore and coke. Following the first national price increase in eight months, U.S. steel’s production struggles may slow down soon, but in the meantime, those involved in the industry must remain hopeful and patient.