US scrap price rally draws focus to railcars

Market: Metals
16/12/20

A run-up in US ferrous scrap prices and tighter scrap availability has resulted in higher demand for under-utilized railcars as well as those at or near the end of their life cycle.

Florida-based full-service rail company PFL Petroleum Services has put out a call for railcars to be scrapped, citing a significant increase in scrap metal prices in December.

PFL said it is seeking to purchase delivered railcars for $300/gt in Virginia, Texas or Tennessee.

The largest pockets of scrapping demand are for covered hopper cars used to carry fracturing sands, which have been under-utilized because of the downturn in North American oil and gas drilling, PFL said. Scrapping candidates also include older DOT-111 tank cars that have been phased out from US crude transportation service, as well as for coal gondola cars, according to the company.

Given the run-up in scrap prices, an imbalance of scrap supply versus demand, surging export prices and the onset of wintry weather across the northeast, some processors are attempting to generate flows by raising buying prices for under-utilized equipment, railcars and machinery.

Railcars can be processed to generate various grades of scrap including plate and structural (P&S), heavy melting steel (HMS) and cast iron, while railroad wheels fetch their own prices. Processors are also able to sell-off some of the parts into the secondary market.

National average prices for 5ft P&S as assessed by Argus increased $80/gt in December to $357/gt, the highest level since August 2018. Similarly, #1 HMS national average prices rose by $75/gt over the same period to $335/gt, which marked a nearly two-year high.

In addition to soaring scrap metal prices, rail-car scrapping could also get a boost from federal incentives being considered by the US Congress.

For example, a bill introduced in the US House of Representatives in August establishes a new tax credit for replacing or upgrading certain railcars.

According to the Railway Supply Institute (RSI), the bill creates a 50pc tax credit for purchasing new railcars or refurbishing old ones to improve their efficiency, which would expire at the end of 2024. It also allows for separate tax credits for scrapping railcars based on their depreciated value, RSI said.

By Brad MacAulay and Chris Baltimore

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