US Ferrous Scrap Prices Continue to Decline: The Causes and the Impact of US Policy

US ferrous scrap prices are forecasted to drop further in October, continuing the downward trend seen in September. Fastmarkets’ Trend Indicator has fallen to 40.1, corresponding to a projected decrease of approximately 3.6% compared to the previous month. This reality reflects a combination of weak downstream demand (from mills, construction, and automotive sectors), macroeconomic headwinds, and an information vacuum caused by the US Census Bureau suspending the release of trade data amid a government shutdown. This article provides an in-depth analysis of the direct causes of the price decrease and dissects recent US policies—from the Fed’s decisions to changes in tariffs—and how they are impacting the metals and scrap markets.

Developments and Fundamental Data

Fastmarkets, a leading agency monitoring the scrap and metals markets, reported that its Trend Indicator for the ferrous scrap market dropped to 40.1. This signals a bearish market sentiment and forecasts scrap prices to fall by about 3.6% in October, following a 2.6% drop in September. The report also highlights that supply is not the short-term driver for higher prices: inventory levels remain slightly below average (inventory index at 43.3), meaning supply is not building upward momentum to offset the demand slump.

Crucially, Fastmarkets noted: “The primary shaping factor is declining mill demand coupled with macroeconomic headwinds.” In other words, scrap prices are being driven down mainly by demand factors, not a supply sell-off.

Direct Causes of Scrap Price Decline

The following are the main channels of impact, each directly affecting scrap demand or downstream costs/prices:

a) Slowing Steel Manufacturing Demand and Mill Activity

Steel mills are the largest buyers of scrap; when orders for finished steel products decrease, scrap demand declines sharply in tandem. US PMI data indicates that the manufacturing sector remains in a contractionary zone (ISM Manufacturing PMI at 49.1 in September, below the 50-point threshold that signifies contraction), suggesting continued pressure on mill activity. As steel production shrinks, scrap demand falls, pushing prices down.

Weakness in Housing and Construction Spending

The construction industry, a long-term driver of steel demand, is showing signs of weakness: housing starts declined in August, and overall construction spending is trending sideways or downward. These factors reduce demand for structural steel, slow inventory liquidation, and thus reduce scrap requirements.

Supply Chain, Automotive Demand, and Fabricator Consumption

The recovery of automotive production is always vital for scrap consumption (scrap from production lines, auto bodies, and components). Despite cyclical improvements, the automotive sector remains pressured by international orders, raw material costs, and supply chain adjustments due to tariffs. This reduces the buying demand for scrap used in production. Recent industry reports indicate that auto production remains volatile and is not creating strong upward price pressure.

Market Sentiment and Self-Fulfilling Price Expectations

When the Trend Indicator and specialized news outlets consistently report a bearish trend, sellers (scrap yards, brokers) tend to feel pressure to sell to avoid long inventory holding, while buyers wait for lower prices—creating a downward spiral. Fastmarkets stresses that more than half of market sources expect lower prices, with only a small minority anticipating an increase.

Information Vacuum due to Government Shutdown

A subtle yet very real impact: the US Census Bureau announced a temporary halt on trade data updates due to a “lapse in federal funding.” This is largely a consequence of the government shutdown that began on October 1, 2025. Since business news, analysis, and decisions depend on import-export data (shipments of steel, billet, and scrap crossing borders), the lack of information increases uncertainty. Traders and mills struggle to confirm the volume of steel/scrap imports or changes in trade flows. This leads to increased caution in buying and selling, reducing short-term demand. Fastmarkets had to postpone the publication of several import-export material analyses due to this issue.

Recent US Policies and Their Effect on Scrap Prices

Beyond pure supply-demand factors, several US macroeconomic and trade policy decisions over the past few months have directly or indirectly affected manufacturing activity, input costs, and market expectations, thereby influencing scrap prices.

a) The Fed’s Monetary Policy Decision (Hawk or Dove?)

In September 2025, the Fed moved to cut interest rates by 25 basis points—a slight easing signal intended to support a cooling labor market. However, Fed officials subsequently issued cautious messages: some advocated maintaining a vigilant stance to prevent a resurgence of inflation. The impact on scrap is complex: lower interest rates could, in theory, reduce borrowing costs for mills, encourage construction investment and procurement, and support steel demand. But if the Fed views it only as minor easing and the economy remains sluggish, the stimulus effect will be limited. Furthermore, expectations about inflation and capital costs influence decisions on scrap inventory purchases.

Tariffs and Steel Protectionism: Driving up Input Costs, Reversing Trade Flows

The federal administration made significant tariff changes: adjustments since mid-2025 aimed to increase tariffs on imported steel and aluminum products (e.g., raising Section 232 levels on some lines to 50% as announced in June 2025). These tariffs raise the cost of imported finished steel and components, leading to two contradictory consequences:

• In the short term, high tariffs make imported steel more expensive, which could support domestic steel prices and, consequently, scrap prices (as mills partially substitute with domestic scrap sources).
• However, the reality of 2025 shows this impact is negated by weak demand: businesses reduce new orders due to increased costs and import-export uncertainty, leading to reduced production and scrap demand. Additionally, new regulations on derivative tariffs (applying duties to even the “steel content” within larger products) disrupt trade, causing some importers and fabricators to delay orders, weakening demand.

Government Shutdown, Data Interruption, and Confidence

As noted, the government shutdown interrupts the release of critical data (Census, BLS, BEA). This does not directly change the volume of steel or scrap in the market but deprives warehouse managers, traders, and mills of standard benchmarks for decision-making. In an uncertain environment, purchase orders are often delayed or reduced. This contributes to the sharper price decline.

Infrastructure Investment Packages and “Buy America” Programs

Infrastructure investment programs (Bipartisan Infrastructure Law/IIJA) and “Buy America” regulations, which mandate the use of domestically produced steel and iron products, could stimulate increased scrap demand in the medium term if projects are quickly disbursed and domestic mills need more raw material. However, disbursement is often slow, and in the current context, disbursement delays combined with supply chain difficulties reduce the immediate stimulus effect. Therefore, while there are medium-to-long-term supportive factors, they are insufficient to offset the overall weakness in the short term.

The Interaction of Factors: Why the Price Reaction is Stronger than Expected?

Multiple negative factors coexist: PMI below 50, declining housing starts, data loss from the government shutdown, and tariffs making producers cautious. The result is a “risk package” that changes the behavior of both buyers and sellers: sellers seek to optimize cash flow by selling quickly, while buyers wait for further reductions. Additionally, steel companies may temporarily reduce scrap inventory due to cash flow concerns or because they are reluctant to accumulate raw materials when finished product demand is weak. This leads the scrap market into a state of low liquidity, making prices vulnerable to sharp drops.

Fastmarkets confirms that inventories are “slightly below average” (43.3). This suggests that a supply shortage is not a factor mitigating the downward trend; meaning the price decrease is genuinely driven by weak demand.

The decline in US ferrous scrap prices is not an isolated phenomenon due to oversupply but the result of a confluence of factors: weak steel demand (reflected in PMI and construction activity), trade policy uncertainty (high and changing tariffs), information disruption due to the government shutdown, and macroeconomic/monetary policy developments. Fastmarkets has encapsulated this environment with a Trend Indicator of 40.1 and a forecast of a 3.6% decline in October—a warning that the market needs time to absorb the impacts from both the demand chain and policy decisions. For market participants—from mills to dealers and analysts—the key in the coming months will be managing inventory risk, seeking alternative data sources while government statistics are unavailable, and closely monitoring policy decisions (interest rates, tariffs, infrastructure disbursement) which will determine the next turning point.

Source: recyclinginternational and compiled from the internet.