Tariff uncertainty results in choppy nonferrous scrap flows

President Donald Trump implemented tariffs March 2 on Canada and Mexico under the International Emergency Economic Powers Act (IEEPA), saying the moves were designed to combat the threat to U.S. national security, including public health, posed by drug trafficking.

The tariffs, which went into effect March 4, were paused for one month starting March 6 for imports that comply with the United States-Mexico-Canada Agreement (USMCA), including automobiles and recovered metals for recycling.

Tariffs on recyclable materials threaten significant disruption for U.S. recyclers, according to Adam Shaffer, vice president of international trade and global affairs at the Recycled Materials Association (ReMA), Washington.

“Our membership is quite diverse, so even though the U.S. is a net exporter of recycled materials to both Canada and Mexico across the commodity spectrum, many of our members are also importing from these countries, too,” he says. “Additionally, Canada has already announced its consultations for retaliatory tariffs—and that second list of proposed retaliation includes a significant number of U.S. exports of recycled materials that would be subject to new tariffs.”

That list includes dozens of tariff lines for recycled materials such as steel, aluminum, copper, plastics, electronics and paper.

“While we haven’t looked at each specific line, the U.S. exports about $5 billion of recycled commodities to Canada, and the vast majority of these exports will be subject to retaliation if this list goes into effect,” Shaffer says.

On March 4, Recycling Today spoke with an executive of a scrap processing company that has two plants on the U.S.-Mexico border to bring scrap in from Mexico who says he thought Trump’s talk of putting tariffs on Canadian and Mexican imports “was bluster and BS” but, he says, they have the potential to significantly affect some U.S. recyclers, noting their generally thin operating margins.

Even after the tariffs were delayed, recyclers still faced tariffs because of inconsistencies with the use of HTS, or Harmonized Tariff Schedule, codes, according to Patrick Merrick, president of W. Silver Recycling Inc., El Paso, Texas, which has operations on both sides of the U.S.-Mexico border.

“If the generator doesn't declare them appropriately as the right HTS code of scrap, then it may trigger a potential tariff,” he says. “There's a lot more questions than answers right now.”

With facilities on both sides of the border, Merrick says W. Silver is in a unique position.

“We've had the ability to pivot for certain customers,” he says. “[The week of March 3] was, obviously, a very crazy and dynamic period of time given the three days that the Mexico tariff was in effect.  … We were working on a lot of different custom solutions for our suppliers to either keep material in Mexico, to go to one of our facilities there and hold it or postpone shipment while everybody was trying to work through and understand if this was going to be long term or not. We've been able to put in a lot of fail-safes in the event that April 2 hits and they do go back into effect there are options that we have. None of them are perfect solutions by any means.”

The uncertainty surrounding the tariffs has contributed to a slowdown in prime scrap generation, Merrick says, adding, “But I think there's just a general slowdown, obviously, in consumption of goods. Auto is down. A lot of consumer products are down. So, we are seeing less scrap available than [at] a normal time, but it's hard to say what percentage of that is tariff-driven versus just a slowdown in consumption of products.”

He predicts scrap generation will remain choppy until the tariff situation is clarified.

“We've seen a spike [the week of March 10] in volume, and it's hard to tell if that's additional production that's happening, or perhaps people were holding some of the scrap from last week because of the tariff impact,” he continues.

The executive with the other scrap processing company says generation at its industrial accounts was good through February, though retail trade was soft despite the high prices peddlers could receive for their material, which he attributes largely to weather conditions throughout the company’s operating area, which includes the Midwest and Southeast as well as Texas.

He also notes strong domestic demand, and says mills “seem like they are busy and in the marketplace.”

Merrick agrees that domestic demand for nonferrous scrap remains strong, though delivery dates are being pushed out for some nonferrous scrap grades.

For copper and brass recovered materials, Merrick says a lot of mill appointments are getting delayed further and further because they have “ample inventory,” adding that Mexican demand has “evaporated.”

“Global trade seems to be not flowing the way that it had because of a lot of uncertainty, as well,” he says, adding that the potential for retaliatory tariffs is contributing to the uncertainty. “I think there's a lot of apprehension by foreign buyers. So, we're seeing a surplus of material available in the U.S. market.”

The other scrap company executive also notes that export demand, particularly from Korea and India, seems soft as pricing is not as attractive as it was late last year.