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Markets - Ferrous 5 March 2014

The unpredictability of the ferrous market is heaping more pressure on merchants across the UK, after a series of price drops in recent weeks. After a slow start to the year, many merchants have been hoping for a lift in business as the sector gets into gear again.

However, any hopes of a more positive 2014 as the UK economy improves seem to be fading, as an apparent fall off in demand has seen prices drop by an average of £30 per tonne across the UK compared with a month ago, according to operators that MRW spoke to.

An initial fall in prices at the end of January was followed by further drop in the middle of February, and many operators reported further drops as MRW was going to press.

A strong pound, falling demand from abroad and a continuing global downturn are among factors being blamed for the instability of the market.

One southern merchant, whose experience was typical, said: “Prices have come off another £10, they came off £20 a couple of weeks ago. They haven’t got any orders, that’s what they [the larger operators] are telling us.

“Gate trade hasn’t really picked up since it fell off when they introduced the new licensing laws at the end of last year.”

Several operators believed that exchange rates were to blame for a fall off in demand for UK scrap. One merchant in the North East said: “I’ve been told it’s the currency rates meaning there’s not a lot of demand from other countries.

Gate trade is still brisk but there’s no profit in it. Factory contracts have increased but I don’t know how long that will be for. In general there’s not a lot of demand at the moment.”

One Welsh operator also put the slump in trade down to lack of demand from abroad.

“We’re doing £75 for light iron now,” said the merchant. “Manufacturers have cut their quotas. Imports from China have decreased now they’re getting more restrictive. It could get worse before it gets better.”

Another operator estimated that prices had fallen £40 in the last month forcing him to hold on to scrap in the hope of an upturn in the market.  

“I’m hearing that the pound is too strong, there’s a global recession so no one wants it, and it’s cheaper to buy iron ore now,” said the merchant.

“All I can do is stockpile it until the prices gets better. I’m not going to let it go when I’ve paid £40 more for it.”

Most merchants were unsure how the latest price drops would impact on trade in the coming weeks.

“I’d say conservatively it’s £30 down on last month,” said one North West merchant. “We’ll have to see what happens when word gets around that prices are down, and maybe going down further. Either there’ll be a rush or people will sit on it.”

To add to the uncertainty, several merchants said that they expected further price falls.

One operator said: “There are rumours that it will come down another £5 to £10. That could be just talk, but I’m not hanging on to anything.”

Another North West operator said prices could hit £60 for light scrap, while one Scottish operator was expecting “a big drop” any time.

Some merchants said the constant price fluctuations over the last few weeks were making it difficult to do business.

“Prices have gone down three times in the last month,” said one Midlands merchant. “There’s not a lot of material about so you’d expect prices to be stable of even to go up a little bit. For the price to fall so dramatically in such a short space of time it must be because there’s no demand. People can’t afford to have stuff sitting in the yard, those days are long gone.”

“In a way the price is irrelevant, what we need is stability of prices so you can work forward. You can’t quote for work, when it’s up and down like this.”

MRW spoke to 13 merchants for this report

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