The Changing World and its Effects on the Scrap Industry: The Dollar
August 24th, 2012 by Jacob Smith
The most challenging aspect of buying and selling scrap metal is keeping up with changing prices. A metal can be worth one amount in the morning and another amount by the afternoon. That’s because the metal market is very volatile. Many different factors have many different effects on the price of any given metal. We’d like to shine a light on these dynamic factors, starting with the changing value of the dollar.
Metal commodities are traded in dollars. Dollars are the currency used globally for buying and selling base metals, regardless of where in the world the trading takes place. If the value of the dollar increases, metals become more expensive for other currencies, whether they’re being traded in Pennsylvania, Portugal or China.
This holds true even if the dollar value of the metal remains the same. Say for example that copper is trading for $5.00/lb. If the dollar is valued at 2 denominations of another currency (ex. 1 dollar = 2 euros), then the value of the dollar doubles (ex. 1 dollar = 4 euros), the copper has become more expensive, regardless of the dollar amount remaining at $5.00/lb. Because each dollar is in essence more expensive, the price we pay for copper may go down due to increased cost. Conversely, when the value of the dollar goes down, we can pay higher prices for metals because those dollars are “less expensive.”
The dollar itself is subject to many market and global factors. America is one of the most stable countries in the world despite our economic and political hardships. This is especially true when contrasted with the rest of the world. Because of that, dollars are considered a “safe” investment. When there is uncertainty in the world, when there is risk, such as the threat of war or economic collapse, investors will often put their money into dollars, thereby increasing the value of the dollar.
The net effect of this is that political turmoil half a world away can have a marked effect on what we can pay you for your metal here in our facility.
There are many other factors at play, affecting both the value of the dollar and the value of a metal. In the coming months, we’ll do our best to give you a crash course in some of these factors, and offer a look “behind the curtain” of the scrap industry. If you have questions, let us know in the comments below and we’ll do our best to answer them.