Scrap Markets, Pricing, and Commodity Trading Basics
How scrap prices form
Scrap prices respond to mill demand, steel and metal production, construction and manufacturing activity, export demand, energy costs, freight, and currency movements. Candidates should understand the difference between published indices and negotiated transaction prices, the role of monthly or periodic settlements, and the concepts of spot versus contract sales. Know that ferrous prices are often quoted per gross ton in some markets and per metric ton in others, so unit conversion matters.
Trading basics
Understand bid and offer, spread, hedging, and the idea that scrap is a commodity with quality premiums and penalties. Buyers price on chemistry, cleanliness, and delivery terms. Delivery terms (who pays freight) shift effective price. Risk comes from price volatility and from quality disputes.
Traps to watch
- Mixing gross tons, metric tons, and short tons in calculations.
- Comparing an index price to a delivered transaction price without adjusting for freight.
- Assuming a higher headline price is better without considering penalties or freight.
- Ignoring currency and export effects on domestic pricing.
Worked example
A buyer offers $300 per gross ton delivered, and freight is $20 per ton. Rule of thumb: convert to a common unit and subtract freight to compare to an index. If the index is quoted per metric ton, convert (1 metric ton ≈ 1.102 short tons) before comparing. Never compare unlike units.