Don't Sleep on Scrap

Going green may end up costing you on your next metal purchase.

The push to go green continues to touch every aspect of our daily lives—from our modes of transportation to the products we consume. And you can count metal production in the category as well.

But did you know that not all steel is created the same way? Mills will use one of two methods when producing steel: Electric Arc Furnace (EAF) or BAF (blast arc furnace). EAF uses busheling scrap as its primary ingredient, as opposed to iron ore used by BAFs. The melting of scrap requires much less energy than the production of iron and steel products from iron ore. Therefore, as the push to go green calls for more energy efficiency across the entire supply chain, EAF has become a preferred method for many that are purchasing steel.

Conventional wisdom says that as EAF-based production rises, so too does the demand for busheling scrap, and subsequently the price of this commodity. As of early May, the price of busheling scrap was $580/lb., up from the year-ago period, with futures prices speculating that could rise to $680/lb. by August.

Knowing that the price of scrap (or iron ore) is calculated into the final price of steel, you can expect prices on your next incremental amount of steel to be on the rise as well. Some producers are already accounting for this in their prices.

For example, at the end of April, Atlas Tube announced for a $100/ton increase for all ERW and structural tubing. Prices for both continue to escalate, and inventories remain under increased pressure as demand remains strong and input costs (i.e., scrap) keep rising. It is expected that other producers could follow with similar announcements.

Some experts believe summer is typically the time of year when prices for busheling scrap can soften due to easier transport of metal from scrap yards to mills. But like everything over the past 12+ months, don’t expect it to be a typical summer. Instead, anticipate that prices could stay remain elevated for the foreseeable future.