The market for the sale of scrap metal is consumer-market driven. The demand for scrap metal is generated by the industrial consumer since scrap metal is used as a less expensive alternative to virgin materials. Scrap is not only less costly, but it is also more energy efficient than virgin materials, and as a result, significant energy savings are realized by using scrap.
The market for scrap metal, especially non ferrous, is highly volatile, and, therefore, prediction of scrap prices is extremely difficult. The large swing in metal markets pricing accounts for the dramatic changes in annual sales volumes of scrap metal firms. As such, scrap processors seek to reduce the impact of these volatile markets on earnings by hedging scrap metal in the commodities markets.