Sensitivity of scrap metal prices to global economic conditions

The scrap metal industry is part of the broader recycling industry that involves the collection,separation and processing of materials for manufacture into raw materials or new products. The demand for scrap metal is a derived demand – based on the demand for steel because scrap metal is an input to steel production. Steel demand in turn is based on demand by construction,manufacturing and other industrial sectors. Hence prices for scrap metal are a function of prices for steel. Scrap metal is an international commodity market – Australia is essentially a price taker and prices are set in global markets based on demand and supply factors. Prices of scrap metal in Australia are essentially set by the world price. Estimates of the sensitivity of Australian (or even global) scrap metal prices to global economic conditions are difficult to find. Nonetheless, one implicit estimate for Australia is that a 1 per cent fall in demand for scrap metal results in a fall in domestic scrap metal prices of 0.46 per cent. Nonetheless estimates of the price sensitivity of scrap metal to demand and global economic conditions can be highly volatile. Evidence suggests global scrap metal prices regularly halve and double over the period of 18-24 months.