A conversation with a scrap metal collector (recycler) brought up some interesting information:

  • They had knowledge of ships turned around in mid-voyage.  These ships were steaming toward China, already fully loaded with cargos of metal, mainly steel.

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  • The ships were turned around by the buyers of the steel who indicated they would not accept delivery.
  • This has produced excess supply of steel in U.S. markets driving down U.S. steel prices.
  • Processors that take on scrap metal have closed their doors to taking on new scrap until they work through three months of inventory.
  • This collector (recycler) has enough space to store the scrap for up to two years, and is well capitalized.  They can wait for the processor to re-open to take on new inventory.
  • There is less scrap to be picked up from manufacturers than has been the trend and business has slowed down.

It is all about inventories, more than the cost of production.  With energy costs dropping, costs to process scrap are lower, but inventories are higher because metal stocks are higher due to the drop in global demand.  All of this will have to be worked through before there is a healthy equilibrium between supply and demand.