A Deeper Look Into Fluctuating Scrap Metal Prices

Scrap metal is essential to the Canadian economy. But dealing in the scrap metal market can be unpredictable, due to a number of factors that cause prices to fluctuate constantly. We break down some further complex reasons why the value of scrap metal recycled by companies like Richmond Steel Recycling change so frequently.

Ferrous and Non-Ferrous Metals

In the scrap metal industry, materials are separated into ferrous and non-ferrous metals and the two groups vary substantially in price. Put simply, ferrous metals are metals that contain iron and are known for their strength. Examples of ferrous metals are stainless steel, carbon steel and cast iron and these materials are often used for building bridges, skyscrapers and vehicles.

Non-ferrous metals do not contain iron and include metals such as copper, aluminum, lead, zinc and tin. Non-ferrous metals are malleable, non-magnetic and lightweight which makes them ideal for wiring, pipes and electrical appliances. The Bureau of International Recycling (BIR) estimates that worldwide, 45% of the world’s annual copper production and 33% of the world’s aluminum is produced from scrap metal recycling.

Ferrous metals prices tend to be more stable than their non-ferrous counterparts because ferrous metal prices fluctuate over a longer period of time. This is a result of mills buying ferrous metals on a monthly contract, as they normally plan a melt once a month.

Non-ferrous metals values can jump around from week to week or even day to day. Buyers purchase metals like copper by the pound, which makes non-ferrous metals much more valuable than iron-based metals. Paying by the pound also means a small change in value can affect larger dollar amounts, resulting in bigger gains or losses. As well as being subject to international demand and prices, these reasons make non-ferrous metals prices far more volatile than ferrous metals.

Government regulations

The Canadian government has a very positive impact on the scrap metal industry. Good regulation means that the reputation of the industry in Canada remains highly-regarded and prices remain steady.

The government has limited cash transactions and requires dubious payments to be reported to the police. It has also prevented the industry from operating unsafely by blocking hazardous materials from freely circulating the market which could harm scrap metal works and the environment. Lastly, the government educates the public to properly sort metal before it's recycled and arrives at scrap yards. This improves quality and reduces waste.

China’s new environmental restrictions

In an attempt to clean up their environment and encourage domestic recycling, China has introduced a number of new restrictions on scrap metal imports, which have caused significant disruption in the scrap metal business worldwide. China is the world’s biggest metals consumer, but from July 1, the country has started restricting high-grade copper, aluminum and steel scrap imports, to add to a ban on used cables, waste motors and other hardware waste, which began earlier in the year.

The Chinese government’s new policies have been felt globally by companies like Richmond Steel Recycling. Licenses and quotas for scrap metal importers in China are now more difficult to obtain which makes China’s internal market less competitive and has lowered the price of scrap metal in the country. With less material going to China, exports have been directed to other markets like India and Malaysia which pay less capital. Higher quality requirements has also forced suppliers without proper equipment to ship metal away from China. Imports to China have slipped by a third in the last year to 5.34 million tonnes, down from 8.07 million tonnes in 2017. Such major market changes, combined with new laws, always results in industry uncertainty and creates market volatility.

To learn more about the scrap metal prices offered by Richmond Steel Recycling, please contact your local facility.

Why Do Scrap Metal Prices Fluctuate?

Canadian recyclers process over 16 million tonnes of scrap metal each year, making it the largest sector within the recycling market. But dealing in the scrap metal market isn’t always easy because of the commodity’s fluctuating prices. Values can change from day to day, so scrap yard managers keep an eye on market prices at all times to determine how much their metal is worth.

Here are a few reasons why scrap metal prices change so much and what Richmond Steel Recycling thinks about when trading scrap metal in the market.

Supply and Demand

Like most commodities, supply and demand play a significant role in the price of scrap metal in Canada. The more people who want scrap metal, the more prices go up, depending on available supply. If the demand for scrap metal decreases, so does its value. For example, if there is an economic recession, construction is likely to be lower, which consequently brings down the demand and price of scrap metal.

Stockpile levels

Some countries, such as China and India, have been known to stockpile scrap metal before releasing it to the market. This can affect prices if the new supply on the market exceeds the demand of buyers. If a country already has a large inventory of metal, they can also drop their price and pay less for new supplies.

Geography

Situated on the banks of the Fraser River on Canada’s West Coast, Richmond Steel Recycling is perfectly placed to transport its scrap metal to countries across the Pacific Rim. Locations far away from international shipping ports, which require long road travel to bring it to market, can also drive down the price of scrap metal.

Richmond Steel Recycling’s main scrap yard location also lends itself to overseas competition export and pricing.

Exchange rates

Richmond Steel Recycling exports most of its scrap metal to the US so a strong US dollar benefits the company. A weak American dollar means foreign buyers will see American goods as inexpensive and exports tend to rise, which drives down the price of scrap metal. To protect the organization from currency fluctuation Richmond Steel Recycling employs a hedging strategy.

Tariffs

While there are no scrap metal tariffs in place against Canada, embargoes on trade partners alters the market significantly. China and the US both have scrap metal tariffs imposed on each other as part of their ongoing trade war. Lower trade between two leading world economies can reduce worldwide metal consumption, reducing scrap metal’s value. Both countries are key trading partners for Canada’s scrap metal industry.

Oil prices

The scrap metal industry relies on oil for transportation and to run heavy machinery used to load and process it. Therefore, the price of oil is closely linked to the value of scrap metal. High oil prices will likely lead to lower scrap metal prices as overhead cost for scrap yards increase.

However, when oil prices fall, demand for scrap metal may rise as consumers feel like they have more money in their pocket and buy more products that use scrap metal.

At Richmond Steel Recycling, we offer competitive prices for all types of scrap metal. If you are planning to sell your scrap metal, get a quote today.