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Market Focus: Ferrous metals October 2015

Ferrous scrap merchants are expecting a further drop in prices of up to £20 per tonne this month as operators say the UK market is creeping further towards stagnation.

Most merchants that MRW spoke to said that prices had dropped an average of £15 per tonne across the categories during September, although some said prices fell more than this. The low prices mean that some operators are on the brink of ‘free tipping’ light iron because it is not worth the effort or cost of buying the grade.

The scrap metal market has been in a prolonged slump for months. But although many merchants seem to have become resigned to low prices and quiet trade, and have vowed simply to get their heads down and come out the other side, news that SSI UK, which owns the Redcar steelworks, had gone into liquidation with the plant closing has been a stark reminder of the challenges faced by the steel sector.

Most merchants that MRW spoke to said they were unlikely to be directly affected by the problems at Redcar, but some added that they knew suppliers who were owed significant sums.

Add to this the fact that there are expectations of further drops of up to £20 per tonne for October, and several merchants are talking about total stagnation of the market. One merchant in the north-east joked that they had been sunbathing all day because trade was so quiet.

Regarding the Redcar closure, the merchant said: “Quite a few up here are owed - some say they have got insurance but it won’t pay out. I don’t think

it [the plant] has made a profit since it reopened, so what’s the point of trying to rescue it?”

However, the malaise affecting the ferrous scrap trade was mostly blamed on foreign markets and production by merchants that MRW spoke to across the UK. “There is no domestic market [and] we can’t export it,” commented one merchant. “It is cheaper to buy from China or Russia. British industry isn’t buying British. I don’t think there will be an export market come the end of October.

“Either markets will continue to fall and other sites will be mothballed, or the [Redcar] closure could create demand from sites that are still open.”

The merchant said they had stopped taking smaller amounts of scrap in some categories.

“If it is less than a certain amount, then I’m not paying for it,” one said. “It’s not worth the paperwork for a washing machine and then I write a cheque for £2. I’ve even heard some people say they are going to charge to collect scrap, but I don’t know how that would work.

“All it will take is a week or two of no movement and that’s it - it will go the same way as the coal industry.”

One merchant in the south, where prices have also fallen, had a similar view: “We’re paying £20 for light iron. It’s not rock bottom, it can go right down - we were charging for it 25 years ago.

“Trade is terrible - the whole industry has gone to dust. It will carry on like this until there’s a market. At the moment there isn’t. We just have to keep our head down and follow the drops and hope to come out the other side.”

One Midlands merchant said that prices had dropped by between £15 and £20 in September and said this was keeping customers away.

“I’ll pay £10 for light iron if I can, but I would say it’s normally £20-£25 and mixed is £40,” he said. “No one wants the scrap at the moment. Some merchants might be waiting until the new year, hoping that it will pick up and

they can make some money on it. But you’ve got to have big pockets to be able to do that.”

In the north-west, one trader who had seen an average £15 price drop in September was expecting another fall of £20 in October as MRW went to press.

“We are paying £30 for light iron, but that’s probably too much,” he said. “If it comes down any more it will be free tipping. Mixed, good agricultural stuff, would be another tenner.

“No one wants it. Redcar was doing 6,000 tonnes a week but that’s now come back on the market.”

In Scotland, the situation was similar, with operators reporting price drops of between £10 and £20 during the past few weeks. One said: “Prices were down around £15 across the categories in the month. Don’t know about next month but it’s not looking good.”

Another saw even steeper falls: “Prices have gone down about £20 since the start of September. Light iron is down to around £35 per tone from £50 the previous month. People are hanging on to metal until the price goes up. We have lots of people calling but then they don’t show up. Prices usually drop in December so I don’t know what they are hoping for.”

One Welsh merchant said that prices had dropped by as much as £40 in the past month and, again, the theory was that it is the fault of activity abroad.

“It’s China,” he said. “Now they’ve got billets that they can’t sell, so they have flooded the market with cheap billets. People are buying that instead of scrap.”

Another merchant said: “We can’t pay anything for light iron now. By the time we transport it to the Midlands,

it’s not worth it. None of the prices is good. People call and when they hear the prices they think ‘I’ll hang on to my scrap for a bit’ in the hope that prices will go up.”

MRW spoke to 13 merchants for this report

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