It is uncanny how rapidly the commodity markets have reversed themselves. Just two months ago prices were high for steel and scrap and everyone thought that the China and India factor would keep commodity demand high for the foreseeable future. The industry leaders had talked as if we were on a ‘permanently high plateau’, a prediction made by a professor about the stock market…. in 1928.
We know that markets do not spike up as steeply as they do and then level off. We expected a correction, but not a collapse.
Scrap and steel prices that have nearly tripled over the last twelve months have dropped to twelve month lows in only 30 days. As prices dropped so did the demand; the opposite you would expect from a basic economics course. Mills are reducing capacity and we are reducing inventory as much as possible in expectation of further price declines.
The result is such a dramatic reversal that months of profits quickly turn to losses as commodity sellers have to sell inventory for less than they paid for it. It is not a game for the weak or the leveraged.
For those contractors who have contracts locked in based on older higher costs, they will greatly benefit by the lower prices. Raw material costs are way down; aluminum, copper, stainless, and carbon steel are all down sharply.
Nothing goes up forever, and sharp market rises are often followed by even sharper market declines. Oil is half what it was in June and still dropping.
It is not a new reality; it is just an old reality returning.