Scrap Metal Will Be Key to Future Steel Prices in Mexico

The price of steel used in key industries such as the automotive sector will be linked to scrap metal prices

Analysts estimate that scrap metal supplies will increase as the automotive sector recovers.
January 10, 2022 | 06:17 PM
Reading time: 2 min.

Mexico City — Between August 20202 and July 2021, steel prices in Mexico recovered to levels not seen in years, with increases of 200% for flat steel and 85% for long steel, a trend that began to slow however in the second half of last year as supply began to increase and demand cooled.

In the future, the prices of the raw material used in key industries in Mexico, such as the automotive sector, will be linked to the prices of scrap metal, a raw material that has become ever more important as a greener steel industry emerges. “It’s a theme that we should always be following. Scrap is the raw material that is gaining ground globally,” Adriana Carvalho, managing editor for Latin America at S&P Global Platts, told Bloomberg Línea in December.

A little over 30% of the steel produced in Mexico is manufactured with scrap metal, much of which is imported from the U.S.

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As a reference point, Turkey is the world leader in the import and use of scrap metal, using more than 80% scrap in its steel production, according to The Bureau of International Recycling, a global umbrella organization of companies and state-owned recycling firms.

The price of scrap depends on the capacity of recovery, a process in which diverse factors have an impact, such as weather, which makes the price of scrap imported from the U.S. more expensive in the winter.

“Steel mills are trying to push prices up. And that pressure is being seen on scrap,” Carvalho said.

While analysts believe that the world scrap market will adjust in early 2022 due to low supply, the scrap supply will begin to increase as the automotive sector recovers.

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Read More: Steel Demand to Increase Next Year Even as Energy Crisis Looms

“Everybody is talking about the scarcity of scrap because electric furnaces are increasing their capacity and demand for scrap, but there is no scarcity of obsolete scrap,” John Anton, director of prices and purchases at IHS Markit, said in a note published by S&P Global Platts in early January. “There is plenty of obsolete scrap, you just have to go a bit further away to get it”.

Prospects for late 2022 and early 2023 are of a drop in global scrap prices as supply increases, mainly from China.

Scrap is used in electric arc furnaces that are less intensive in pollutant emissions, and that is driving exporters and banks to impose conditions to guarantee sustainability. For example, the European Union will introduce legislation in 2024 that will link the export of scrap from the bloc with external audits that guarantee its sustainable handling in third-party countries.

In Mexico, the country’s largest bank, BBVA México, signed a sustainability agreement in October with steelmaker Gerdau Corsa on a credit contract for the import of scrap as a raw material for $60 million.

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