Is There a Correlation Between the Price of Steel Scrap and Oil?
Commodity markets are deeply interconnected, and steel scrap is no exception. One of the most common questions in global ferrous trade is whether steel scrap prices move in correlation with oil prices.
The short answer: there is no direct pricing formula linking steel scrap to oil — but there are important indirect relationships.
Understanding these connections helps traders, recyclers, and exporters anticipate broader market movements.
How Oil Influences the Supply Chain
Oil is a foundational input cost across the global economy. While scrap itself is not priced off crude benchmarks, energy costs influence multiple layers of the steel production process.
1. Transportation & Freight Costs
Scrap is a bulk commodity. Whether moved by truck, rail, bulk vessel, or container, transportation costs are highly sensitive to fuel prices.
When oil prices rise:
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Inland haulage costs increase
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Ocean freight rates often firm
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Export margins compress
When oil falls:
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Freight becomes more competitive
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Export arbitrage widens
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Regional markets can access distant supply more easily
For exporters, lower oil prices often improve containerised scrap competitiveness.
2. Steel Production & Energy Costs
Primary steel production (blast furnaces) relies heavily on coal and coke, while electric arc furnaces (EAF) — the largest consumers of scrap — rely primarily on electricity.
Oil does not directly fuel most steel production, but energy markets are interconnected. Higher oil prices can push broader energy inflation, influencing:
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Power costs
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Industrial operating expenses
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Manufacturing confidence
If energy costs spike sharply, mills may reduce output — which softens scrap demand.
3. Global Economic Activity
Oil prices often act as a proxy for global economic momentum.
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Rising oil prices can signal strong global growth and industrial demand.
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Falling oil prices can signal slowing economic activity.
Since steel demand closely follows construction, infrastructure, and manufacturing cycles, scrap prices tend to respond to broader macroeconomic signals — some of which are reflected in oil markets.
In this sense, both commodities can move in the same direction during expansion or contraction phases, but not because one directly determines the other.
When Correlation Appears Stronger
Correlation tends to strengthen during:
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Major geopolitical disruptions
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Global recessions
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Inflationary commodity cycles
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Freight market volatility
For example, during periods of global stimulus and infrastructure spending, both oil and steel scrap may rise simultaneously due to strong industrial demand.
Conversely, during economic slowdowns, both may weaken.
However, scrap prices are ultimately more sensitive to:
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Regional steel production levels
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Scrap supply flows
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Import policies and tariffs
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Currency movements
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Seasonal construction trends
Structural Differences
Oil is a globally traded, benchmark-driven commodity with highly liquid futures markets.
Steel scrap is more regional, fragmented, and influenced by physical supply-demand balances. It reacts faster to local mill buying patterns than to energy benchmarks.
Conclusion: Indirect Link, Not Direct Dependency
There is no fixed correlation between steel scrap and oil prices. However, both are influenced by broader economic cycles and energy conditions.
Oil affects:
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Freight
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Industrial costs
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Macro sentiment
Steel scrap responds primarily to:
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Steel output
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Recycling supply
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Export demand
For traders and exporters of ferrous and non ferrous metal scrap like Tiger International Limited, watching oil markets can provide useful macro insight — but scrap pricing decisions should always focus on mill demand and physical supply fundamentals.
