As the Covid-19 pandemic continues with more than 10 million cases worldwide, more side effects of lockdowns imposed to stop the spread of the virus can be noticed in the steel industry. One of them is difficulties to collect steel scrap.

“Usually, what promotes scrap or the creation of it is the end of life assets, white goods: people buying new fridges or freezers, new cars, etc.”, as Liberum’s mining analyst Ben Davis, explained to MM Steelclub. With many countries facing recession forecasts in 2020, people are less likely to spend on new house appliances and dispose of their old ones. In the USA, personal consumption expenditures dropped by 6,6% from February to March and the fall was even steeper in April, 12,6%, according to the Bureau of Economic Analysis. New car sales also declined during the second quarter of 2020, with American producers suffering what the CNN called “their worst quarter since the Great Recession”.

In this context, the American steel industry is struggling to gather steel scrap, as XSteel USA’s CEO, Enrique Garza, said at MM Steelclub’s 3^rd Virtual Conference on the Steel, Metals and Mining Industry in Mexico. Garza explained to the more than 170 attendees that scrap was one of the factors that had led to an increase in steel prices in the last few weeks.

“There are several reasons for this. First, scrap exports to Europe, Turkey to be specific, have resumed. Second, the collection of scrap has been limited due to Covid-19”, he said. “As the US mills are resuming operations and are trying to reach their normal level of production, we see that scrap prices have a tendency to go up”.

Garza thinks scrap collection issues could lead to a rise in steel finished product prices in the USA in the months to come. “So if we see price increases on the finished steel products, I believe those price increases are going to be based, not on demand, but on raw materials cost”.

A similar forecast for the global steel industry came from Daniel Riojas, Sales Deputy Director at AHMSA, Mexico’s largest steel producer. “It’s not only the demand but also the prices of raw materials that are going to drive the price of steel”, he said at MM Steelclub’s event.

“It’s not just scrap, but also the other raw materials. Iron ore, coal and pellets’ prices are not decreasing as we had expected”, he said. “I don’t see scrap prices going down… Also, people aren’t buying lots of cars, so at the same time, there’s no scrap in the market. There are so many variables in there”.

Fisacero’s CEO, Carlos Alanis, was also at MM Steelclub’s virtual conference, where he explained that the Mexican steel industry was also struggling to find scrap. “I think that this is a very unusual situation”, he said, “the price of scrap has gone up in the last few months and this has to do with the availability of the material”.

“Factories shut down, there was a stoppage for almost three months, so there was no scrap coming out, specially, from the automotive sector”, Alanis said. The CEO thinks this low availability will keep price trends up for the rest of the year. “That’s why scrap became really hard to find. As long as we continue to see factories operating at 50%, or shutting down or even closing down, this will limit the availability of scrap in all North America”.

On the other hand, Jose Luis Vargas, General Manager for Mexico and Central America at Harsco Industrial IKG, said he hasn’t seen any significant change on the scrap prices. “Perhaps the impact we will receive will come from the collection, and maybe, it will be more related to the Covid-19 contingency measures”.

“Perhaps the number of participants in the scrap market will be reduced, I mean, not all companies will be able to survive this contingency plans. But I am not expecting any significant change from there”, he said.