For the past few years, news outlets have focused intensely on the US government’s proposals for increased tariffs on steel and aluminum. The tariffs are part of his administration’s plan to lower trade deficits with other countries. Government officials hope that implementing tariffs on certain strategic goods will also support domestic industries. A particular focus of the government has been metal tariffs. The United States uses tariffs to charge a premium on imported steel, essentially creating a barrier to entry for foreign steelmakers. Over the course of 2018, US steelmakers saw high demand for domestic steel, that resulted in higher prices in new steel, as well as scrap metal. Scrapyards, professional recyclers and hobbyist scrappers are all watching the tariff situation closely. It’s uncertain what the future holds but understanding the effects of tariffs can help scrap metal recycling industry plan ahead.
Impact of Tariffs on Supply
Under tariffs, US companies pay a premium on foreign imported steel, aluminum and other metals. It’s a common misperception that foreign exporters to the United States directly pay the tariffs. The end consumer actually foots the bill. Producers could lower prices to ease the brunt of tariffs on their American customers, but this is difficult when margins are already thin. Domestic buyers are often forced to look to domestic steel and aluminum makers for supply. That’s the whole point of tariffs, but the rush of domestic purchases can often overburden the market causing metal prices go up. As manufacturers struggle to meet new demand, higher metal prices are often passed on to end consumers of metal goods. Things like cars, bicycles, and buildings all become more expensive. The hope of tariffs is that eventually domestic supply will ramp up to be meet demand and then prices can return to normal levels.
Tariffs and Scrap Metal Prices
The response of domestic American steelmakers to tariffs will have a significant influence over the outlook for scrap metal recycling. It’s possible that while they work to increase production there will be lower supply in the US because imports are down. That would mean less scrap is being made and available for purchase. Lower supply generally means higher demand and rising prices. That would be good news for scrappers, of course, but only for those who can find available scrap. If supply becomes too scarce, it could hurt the profitability of scrapyards and force some of them to close. Yard closures would limit competition for scrap further and possibly disrupt prices. However, if suppliers can keep up with demand, then steel prices could normalize.
Another way tariff implementation in the US could affect scrap prices is via international retaliation. As soon as the United States announced tariffs on steel and aluminum, there were a lot of headlines that other countries would reciprocate. Trade barriers to metal in overseas markets could affect the ability of domestic scrap metal recyclers to ship products abroad. Inability to sell could mean they have less demand for scrap and prices might fall.
People involved in the scrap metal recycling need to follow the tariff situation, so they’re not caught off guard by swings in price and supply. Markets often respond to tariffs in unexpected ways, so the full effects of metal tariffs can be hard to determine. It’s always a good idea to take a conservative approach to scrap metal recycling as a precaution.