Factories and Inventory and Manufacturing & Technology

Price of scrap metals surge upward

April 3, 2010

After plummeting along with the rest of the economy, the price of scrap metals is surging upward.

Economists say that's a good thing for the regional economy — in the sense that increased manufacturing is partly responsible for the increased price of scrap.

But that increased price also means higher costs for manufacturers. And for some firms that buy and sell scrap, volatility can be bad news.

"It's a runaway train again," said Jerome Henry, a Fort Wayne businessman whose companies buy and sell scrap metals from stamping plants and other commercial sources. "It's a squeeze for us."

The U.S. Bureau of Labor Statistics this month reported that its seasonally adjusted producer price index for iron and steel rose 3.4 percent from January to February. That's after increases of 17.3 percent between December and January and 12.7 percent between November and December.

The index measures the average increase or decrease in the selling price of iron and steel, with the 1982 price counting as 100. William A. Strauss, senior economist with the Federal Reserve Bank of Chicago, said the index is a good measure of scrap prices.

The non-seasonally adjusted iron and steel scrap index was 501.7, or about five times 1982 prices, in February.

The annual index jumped from 335.2 in 2006 to 406.8 in 2007 and 566.8 in 2008. Then it plummeted to 338.1 in 2009.

For businesses like Henry's Midwest Scrap, rapidly increasing prices pinch two ways: the cost of its supplies is going up at the same time that it's locked into contracts to sell scrap at prices predicated on lower costs.

"If we agree to a price for delivery in March, we have to live up to that," Henry said.

At the retail level, there have been reports that scrap vehicles, washing machines and other items have been hard to come by.

But Fort Wayne-based Steel Dynamics Inc. hasn't had problems finding scrap. It uses metals collected by its subsidiary, OmniSource Corp., as part of the feed stock for its electric-furnace mini-mills. Spokesman Fred Warner said he read in The Wall Street Journal this month of a Connersville scrap recycler's problems finding supplies.

"I said, maybe he's having a hard time finding scrap because we're buying it," Warner said. "As far as getting the scrap we need, that hasn't been a problem."

One factor pushing up scrap prices is increasing consumption overseas of scrap produced in the United States.

"We clearly are a very big producer of scrap," said Strauss, author of the Chicago Fed's Midwest Manufacturing Index.

Despite the recession, U.S. companies exported 3.3 percent more iron and steel scrap in 2009 than they did in 2008, The Wall Street Journal reported. Analysts predict that as consumption of durable goods in China, India and elsewhere increases, scrap exports will continue to rise, making it more expensive in the U.S.

To hedge against rising scrap prices, Steel Dynamics this month began production of iron nuggets at Mesabi Nugget facility at Hoyt Lakes, in Minnesota's Iron Range. Eight train cars loaded with the nuggets were sent to SDI's Flat Roll facility in Butler last week for testing, Warner said.

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