Farmers shouldn’t bank on a cash windfall for their old combines despite a booming world demand for scrap metal, says one of the biggest scrap users in Western Canada.
Prices for scrap metal have doubled in the past 16 months, driven by an economic explosion in China.
The Asian country has rapidly become the largest producer of steel in the world, gobbling up scrap steel in the process. It is the primary raw ingredient used by most Chinese mills in the production of new steel.
China’s overwhelming demand has sent scrap prices soaring to $250 US per tonne in world markets for top grade metal in a finished state.
Read Also
StatCan stands by its model-based crop forecast
Statistics Canada’s model-based production estimates are under scrutiny, but agency says it is confident in the results.
But Canadian farmers shouldn’t expect anywhere near that amount for the junk metal on their farms for a variety of reasons, said Greg Maindonald, vice-president of operation services for IPSCO Inc. The steelmaker has a sizable plant in Regina that consumes one million tonnes of scrap metal every year.
While the value of farm scrap has doubled, it still remains one of the cheapest of the 100 categories of scrap.
Maindonald estimates during the peak of the upswing in prices, an old combine was fetching $60 per tonne, up from $30 per tonne a year ago.
“It’s not the big windfall.”
A lot of processing work is required to get anything of value out of farm equipment. The machinery is full of components that mills don’t want such as plastics, tires, PCB capacitors, paint and low-grade metal. It’s a far cry from the top quality industrial scrap they can get from a place like a ship building plant.
“The difference is the combine has a whole bunch of non-metallics in it,” said Maindonald.
“Farm scrap is probably the worst from a quality standpoint. There’s a lot of residuals in it and I’m talking copper and aluminum and other things a steel mill doesn’t want.”
Another major deterrent is the transportation cost involved in moving scrap from a farm to the plant in Regina. Western Canada lacks a major waterway or adequate rail infrastructure to make the transportation of such a heavy commodity economical.
“Your transportation costs in many cases can be higher than the value of the material.”
Maindonald estimates the Regina plant sources less than 50,000 tonnes of farm scrap a year, which represents five percent of the company’s annual raw material needs.
There isn’t a lot of old farm equipment left these days. IPSCO has already “cleaned up” a lot of the old machinery cluttering farmyards in Manitoba, Saskatchewan and Alberta.
“We have to supplement our scrap needs from the United States.”
Joe Henry, owner of Watrous Salvage Ltd. in Watrous, Sask., said that might explain why scrap yards in places like North Dakota are getting prices two to three times higher than what he receives because IPSCO is willing to pay a premium to get it.
He said the problem in Western Canada is that there’s no competition for scrap.
“You don’t have a lot of choices. Where are you going to take it? (IPSCO) pretty well tells you what they’re going to give you.”
Henry said the price he receives for scrap metal from his operation has gone up $10 a tonne in the last year, an 18 percent increase from 2003 levels, which is nowhere near the doubling analysts speak of. Another prairie scrap dealer said the increase is closer to $5 per tonne.
And there are strong signs that prices could be dropping.
Maindonald said China has “backed out” of the market because it has a backlog of scrap sitting on ships jammed up at the ports. The central government is also attempting to slow the pace of economic growth to avert a banking crisis.
The result for prairie farmers is that an old combine is now worth only $40 a tonne instead of the $60 it was fetching earlier this year.
“The (scrap) market has dropped significantly in the last two months.”
