Learning the Effects of the Tariff on Scrap Metal

Learning the Effects of the Tariff on Scrap Metal Steel and aluminum producers abroad have seen tariffs hit, and the only place they can magically generate money to meet 25% tariffs on steel and 10% tariffs on aluminum is scrap. Yes, it sucks to hear that but it did happen and here’s how it shakes.

These big tariffs are being pushed to the scrap side, and that’s one of the main reasons we’re seeing such a downturn overall. Scrap buyers such as furnaces, smelters and grinders have felt that the tariffs have hit hard and therefore the prices of new steel products have risen significantly – but the rise in tariffs has hit the scrap metal world hard.

While there was a lot of uncertainty in the markets due to the tariffs, we saw that countries such as Turkey and China lowered their scrap purchase expectations, which led to a very low price.

Can Prospects Drive Scrap Prices Down?

It’s hard to explain to companies that stockpile raw steel and aluminum for a living that the scrap market is in decline, but let’s try it anyway.

All the people who bought the raw stock saw their prices go up (due to the tariffs). Okay, this is easy to understand and easier to explain to their customers who buy new products from them. What is not easy to explain or understand is why machine shop and manufacturers’ prices have dropped on all their scrap.

We reached out to major scrap metal producers who sell 200-300k pounds of scrap a month and asked them what their initial reaction was to the scrap decline, and the answer was angry. Many scrap producers could not understand this reverse approach because the last 20 years have shown that if crude products go up, scrap prices go up too.

This reset of tariffs in the market has had the opposite effect and has really put people in a stalemate. Here in the summer of 2018, the overall US economy is very busy, unemployment is at historic lows, and there seems to be more scrap on the market than in years. Still, companies that sell steel and aluminum are making big cuts in scrap yields, many of which include on their balance sheets.

Truth hurts

Not many people want to admit that these market fluctuations are real, but with market fluctuations like they do, we really don’t expect too many great things in 2018. These aluminum and steel producers in the US are seeing all their profits increase and with it overseas metal producers seeing all their profits fall.

To combat the declining profits they need to make up for the tariffs imposed on them if they want to be able to continue selling their metal products to the country. This is one of the main reasons for scrap damage in 2018 and will continue to suffer until the US and all major steel and aluminum sellers agree to fairer trade practices for their countries.

This was very different from other times when metal markets and scrap prices suffered, but in 2018 we saw the opposite for scrap with the economy in full swing and crude steel/aluminum prices soaring.