Ferrous scrap margins seen staying strained

May 30, 2012 | 01:26 PM | Lisa Gordon

Tags  scrapyards, shredders, Merrill Lynch, ferrous scrap, Sims Metal Management, Schnitzer Steel Industries, Lisa Gordon

PITTSBURGH — Scrapyards will continue to see their profits dwindle in the coming months, with no sign that current conditions will ease anytime soon, analysts and market players agree.

The primary problem is an oversaturation in the shredder market that is being felt across the board.

"We see the return to previous peak margins in the key ferrous trading business as unlikely in the near term, given significant shredder overcapacity," Merrill Lynch & Co. Inc. analysts said in a report.

Margins have eroded because the number of shredders increased more than 60 percent since 2001, which has led to more players sharing the same amount of material. Merrill Lynch noted that while scrap volumes have returned to pre-recession levels, margins have not.....

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