According to this article, the US is exporting steel at levels comparable to the peak of 2008. And yet the overall level of scrap has declined dramatically. Obviously, that would mean the percentage of exported material from the total available in the US has increased significantly.

That, of course is also reflected in the lower steel production rates from US mills. Since they are producing less material, they don’t need as much scrap to feed their production. On top of that, we have seen large inventories of scrap at several steel mills, which seems to indicate they are well stocked for the lower production rates.

Given that scenario, it seemed strange that US steel mills across the country that use scrap recently raised the price they were willing to pay for scrap. The article referenced above might just hold the key to understanding why.

The shortage of scrap iron in the US is only going to be exasperated by the higher rate of scrap exports. The weak dollar not only makes US scrap more attractive, it also makes steel more attractive. So if US steel mills continue to find good export markets for their steel and things start to loosen up in the US, the mills could find themselves short material and having to buy at a huge premium. Keeping more of the flow to themselves now might seem much more attractive than what could come later. They also make it even more expensive for their foreign competitors to import steel into the US.

That’s my take on it – does anybody have another theory about the rise in scrap prices just at a time when we normally see them soften up due to seasonal slowdowns?