Scraponomics Episode 83: How the Strength of the US Dollar Affects the Market

“A study of economics usually reveals that the best time to buy anything is last year.” — Marty Allen, American stand-up comedian

Back in February, the commodity market for ferrous iron completely cratered. It dropped to half the price of what it was in January. It has affected the scrap industry greatly, but what could have caused something like this? There seems to be a number of reasons, many of which involve global economics. Today, let’s focus on one key topic: the strength of the US Dollar.

It’s weird, isn’t it? When you hear that the US Dollar is strong, you would think that’s always a good thing, right? Well, it can be under the right conditions. However, one could argue that, given that the US currently imports far more goods than it exports (meaning, not as many goods are manufactured here anymore), a strong dollar can have a negative impact as well.

Regarding the scrap industry, manufacturers making new products, no matter where they are in the world, can currently buy newly re-melted steel cheaper from mills located outside the US because of the strength of the dollar. Similarly, mills can also buy scrap steel cheaper from processors outside the US. When this happens, the market naturally tries to adjust itself to accommodate for the high dollar strength. Over time, the market and the dollar strength should adjust to work with each other again.

So, how does this affect you, the consumer and customer? From a scrap perspective, the thing to keep in mind is that scrap-processors have no control over the commodity markets. We can only adjust to them, the same way everyone else does. It can also take a little time for people who sell scrap to get used to lower market prices. This further illustrates how from a macro to a micro level, we’re all affected by the state of the US Dollar.

Next week, we’ll go over some other potential reasons the market has dropped.

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