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June 2015

State of the Recyclable Metal Market June 2015

The Recyclable Metal Market has fallen on some very tough times of late, especially in Australia. Until recently the Australian dollar has been hovering way over the USD, and our manufacturing base has felt the brunt of international competition. Those manufacturers that were able to survive this long period of torment have had to adapt to lower margins and profits. For the majority it has been a case of sink or swim, with only the strongest companies managing to tread water long enough.

Today we are seeing some relief with the exchange rate at around 80 cents to the USD. For many this is too little too late. With the withdrawal of our 3 major car manufacturers Holden, Ford and Toyota from Australia just around the corner, the pressure on the supply chain will no doubt intensify over the coming years. Any manufacturing engineers that have exposure to these car companies will more than likely lose that percentage of their business to overseas entities.

What effect this has on our national employment is yet to be foreseen, but is a matter of great conjecture. We know that it will have an effect, but the question is how much. I am tipping that it will not be pleasant.

Outside Australia, the economies of the world have also been suffering with Greece and Spain at the forefront. Many other countries are trailing not too far behind. Due to this fact, money has been tight, with consumers keeping it in their pockets rather than spending. When consumers are not spending there is no call for wholesalers and retailers to restock, and therefore reorder goods. In the absence of any orders for finished products there is also little demand for raw materials like Iron Ore and Scrap Metal. Reduced demand leads to lower pricing. Iron Ore has recently been down as low as USD $42, and has exerted pressure on Steel Scrap. Asian mills that typically use only 20% Iron Ore and the residual Steel Scrap, have done a back flip. They now prefer to use 80% Iron Ore because it is so cheap, leaving unwanted piles of Steel Scrap growing in Scrap Yards.

There had been many rumours circulating that if there is not a very significant rise in commodity prices very soon, that scrap dealers like ourselves, could drop the price of delivered Steel Scrap to zero. Although this has not come to fruition, and the value of ferrous metal has actually rebounded slightly in the last weeks of June, we are still pessimistic about pricing. The costs of collection, processing and delivery are not much less than the value of the material.

Copper, Brass and Aluminium Scrap have not fared too badly in comparison to Steel Scrap, with pricing consistent until the end of the last quarter. Copper and Aluminium are feeling some strain, with LME prices dropping an average of 10% in the past few weeks. The demand for these metals is currently greater than the supply in Australia, due again to the reduction of local manufacturing, and therefore spent by-product. We are hoping that pricing will stabilize at current levels.
From the team at Highett Metal, we wish all our associates a bright and prosperous coming financial year.
Peter Dykas
Managing Director