U.S. automobile shredders are grappling with falling feedstock availability as COVID-19 containment measures reduce car accidents, trade-ins and auto auction inventories.
According to Argus Media, sparse availability of obsolete vehicles combined with slow flows of other forms of ferrous scrap have substantially reduced shredders’ feedstock throughout April, forcing many across the US to operate on limited and sporadic schedules.
Scrap volumes are not coming in fast enough to maintain normal operations, according to shredders surveyed by Argus. Some are building up inventories for days before operating shredding equipment and others have idled operations entirely.
“Inbound flow is poor with many yards not accepting peddler scrap,” one shredder in the southern U.S. said. “When demand picks up this will be an issue. [There is] not much inventory in the pipeline.”
Auto repair shops and towing operators have been classified as essential businesses and have so far been immune from state mandated closures. But as shelter-in-place orders extended through April, the vehicles on roads have dwindled, cutting the flow of cars and parts to the recycling industry.
Even with scrap supplies tightening, prices are falling amid low demand for finished steel as manufacturing and auto plants shut to help slow the spread of the coronavirus.
While some consider sitting on inventory until prices improve, large players said that is not a sustainable option for their businesses. Some large auto wreckers said they will likely continue to sell obsolete vehicles to maintain volumes, but will be selective.
Inbound scrap volumes now are barely enough to cover orders, some shredders said, which increased concerns about availability.
Fewer people driving means there could be even less scrap available in coming weeks as the reservoir of obsolete vehicles in auctions declines. Some auto auctions have shifted to online platforms, while others have been cancelled, creating challenges for market participants who rely on that stream of material.
“Everyone is seeing a significant reduction in shredder feed flows,” one Canadian shredder said. “We can shred it faster than we can bring it.”
One auto wrecker and supplier said transactions are down at his call center, on his lot and through title-backed loans. As a result, he plans to hold onto his auto inventory longer than his typical 60 to 90 day hold period.
Published in the June 2020 Edition
