Scrap metal prices are at the lowest levels in nearly a decade and are expected to fall even further. This has many worried about the future of the scrap metal industry.
So, when will scrap metal prices rebound?
The answer is unclear. But, scrap metal prices do have some unique characteristics that can help give an indication of what to expect.
The normal cycle of scrap metal prices
The overall nature of scrap metal prices can be characterized as volatile but robust. It is common for prices to double or halve in response to market conditions. Historically, prices are particularly responsive to recessions and wartime. As volatile as prices may seem, there is a clear 5-year cycle where prices fall and then rebound. It is expected that prices will reach a minimum, then rise. It is uncertain if the expected drop in prices will be the minimum.
Scrap metal prices tend to increase in the winter. This is known as the “great lakes’ freeze effect”. Harsh winter weather conditions inhibit the collection of scrap metal and demolition projects .This leads to a decrease in supply, and resulting in higher prices. So, this winter might be an ideal time to dispose of scrap steel assets.
Scrap metal prices seem to be related to oil prices. As oil prices have decreased, so has scrap metal prices. However, research suggests that there is no relationship between scrap metal and energy prices in the long run. Therefore, Oil prices may not be the best indicator of what direction scrap prices are likely heading.
Reference: Jonathan Aylen and Kevin Albertson, “Markets in Ferrous Scrap for Steelmaking,” Ironmaking and Steelmaking (2006): 203-212.
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