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State of the Scrap Industry – Part 1: Supply and Demand

July 22nd, 2013 by

No matter what industry you’re a part of, it’s important to know how that industry is doing, good or bad. Right now in the scrap industry, commodities are at a three year low. There is a glut of material, and global demand is down.

A few years ago, when commodity values were high, mining companies put a lot of money into producing these materials, creating a large influx into the market. And in the last few years, as commodity values have gone down, investors have unloaded their metals, selling them into privately owned warehouses. Right now in the LME warehouse there are 1.3 billion pounds of copper cathode, and over 11 billion pounds of aluminum. And other exchanges across the world have their own warehouses, each with their own stores of metal.

At the same time that this abundance of resources is coming online, demand simply isn’t there for it. New construction levels especially are not where they need to be to even make a dent in the stockpiles of available metal.

All of this creates low prices for scrap metal. By the age old wisdom of the market, it’s not favorable when supply is up, but demand is down. And while individual market sectors pick up here in the U.S., these successes have to be weighed against the global economy, a topic we’ll explore further in Part 2.