Steel prices had been falling this year.

Then Russia invaded Ukraine and created upheaval in pig iron markets as values for this important ingredient to manufacture finished steel instantly went into short supply. As a result, the spot-market price for hot-rolled coiled sheet steel has climbed nearly 50% since early March, according to S&P Global price surveys.

Why did the war in Ukraine induce this new supply chain issue?

“Pig iron — ore reduced to molten iron that is cast in briquettes — is mixed with scrap in electric furnaces and melted into new steel,” explained Bob Tita in his April 12 article in The Wall Street Journal. “About 70% of steel produced in the U.S. is made in electric furnaces, making the U.S. particularly reliant on scrap steel and pig iron,” continued Tita in his article, “Ukraine war drives shortage in pig iron, pushing steel prices higher.”

To make matters worse, two-thirds of the pig iron imported by the U.S. last year came from those two countries — Russia and Ukraine — and shipments have all but ceased since the Russian invasion.

There are other sources of pig iron. However, developing new supply chains in Brazil, India, and other countries isn’t a flip-the-switch proposition. All of these issues surrounding pig iron have driven prices up nearly 75% since this January.

Scrap metal may help fill the gap

More scrap metal also can be used to make finished steel in U.S. plants. However, that comes with additional costs, too. Scrap metal has jumped nearly 50% since the war has begun and that additional cost will drive up equipment prices.

On the flip side, demand for old farm machinery is very high. This developing situation will allow farmers to clean up and dispose of old farm machinery and create a revenue stream for that scrap farm equipment. Many scrapyards accept intact machinery, and some even offer to come pick up decommissioned farm equipment.

Given the high price of scrap metal, it’s an opportunity worth investigating.

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(c) Hoard's Dairyman Intel 2022
April 21, 2022
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