Good morning everyone,
Given the recent trade spat between China and the US over the past weekend with their renewed vigor to tax, I mean tariff, their citizens, I thought that I would shed some light on our metals market. In addition, to share some trends that we are seeing with our client base and discussions with other yards in our region.
We are seeing what I think is a cyclical slowdown in automotive production and this, I believe, is having a major impact on the large sector of our manufacturing space that relying on the automotive market. We are seeing the impact on the high level by looking to our stock market (re: Magna just has a huge hit to their earnings) and the dealer incentives to move cars (impacting Honda and Toyota’s recent earnings). However, our manufacturing economy is larger than ‘just’ automotive.
I think what we are seeing is that the market is healthy, but not growing at the pace economist had predicted over the past few quarters. We are seeing healthy volumes of scrap come through our facilities and our consumers are telling us that they have no problems filling orders – so I don’t think we have a supply problem – and thereby a healthy manufacturing base. I think that we are seeing an area where mills have purchased enough supply to meet their needs for their foreseeable quarter or two and are moving to a buy when I need it mentality – and at the price I want to pay.
We are seeing this play out with mills with our consumers cutting their buys or of other mills reducing their buys, putting more scrap in the market. One thing that we have spoken about here in the past is the lack of export market to relieve this pressure, due to the tariffs on imported steel and aluminum. The de-facto result of the tariffs is creating a captive market where North American mills can decide the quality and quantity without concern of losing their flow of scrap metal feedstock.
So as the article I have attached from a recent AMM report on stainless notes – “The bloom is off the rose…”. This reality is not excluded to just nickel stainless, but we are seeing it across the board.
What we believe we are seeing here is a healthy cyclical process with the addition of tariff’s making the pricing more volatile. I haven’t seen base commodities being this politicized in my 15 years in the recycling industry. In the past, it was the investment bankers that were throwing the wrenches at us – now it is seems like everyone is.
We believe that we will be experiencing a tradition summer decline in commodity pricing across the board for scrap metal – with both ferrous and non-ferrous pricing coming under pressure. There will be spikes up and down, but overall, I feel the trend will not be our friend. Baring a resolution between China and the US, I don’t see a near term reversal. However, the decline in scrap metal pricing should predicate a lower new material pricing (although the tariffs are skewing this a tad) – always looking for the silver lining….
We cannot fight the market – but we can ensure that we are doing our job to best market your scrap materials and give you the tools to do efficiently and effectively. No rabbits being pulled out of a hat, just old fashion hard work and making sure that your getting the best value for your scrap metal.
If you have any questions about your scrap metal program give me a call or an e-mail.