Soaring steel prices bolster railcar scrap market: Greenbrier
A nearly five-fold increase in steel prices is pushing railcar owners to scrap older railcars, a trend that could continue until 2022, according to railcar maker Greenbrier.
Jay Carter, director of strategic marketing for Greenbrier (NYSE: GBX) estimates that steel prices have risen from $ 400 per short ton to $ 1,900 in recent months, prompting railcar owners to scrap obsolete equipment to take advantage of higher scrap prices.
The metal can be recycled to make steel, at home or abroad.
In 2020, around 47,000 railcars were scrapped, and 2021 has already reached that milestone, according to Carter. About 60,000 to 65,000 cars in total could be scrapped in 2021, Carter said at FTR’s virtual conference last week.
But demand for railcar orders is also growing year on year, although higher steel prices could increase manufacturing costs as railcar owners weigh the need for new railcars against the amount they are paying for. they’re willing to pay for them, according to Carter.
Those with more cars in stock might be less inclined to be in the market, Carter said.
Indeed, the number of cars in stock fell below 400,000, which is more in line with normal levels. The number of cars in storage peaked last July and August at around 525,000 cars. But railcar usage has increased since then, with usage rates rising for 14 consecutive months, Carter said.
The cars coming out of storage can be destined for use on the grid, or they can be destined for scrap: âYou might not get those kinds of high scrap rates in the future,â Carter said.
While high steel prices are the dominant topic among railcar builders, other factors are weighing on the market as well.
Longer term, passing an infrastructure bill in Congress could stimulate demand for new railcars to haul aggregate, although it could also lead to higher steel prices. Meanwhile, a $ 20 spread between West Texas Intermediate crude and Western Canada Select crude could increase crude by rail movements to the US Gulf Coast.
About 30,000 to 40,000 box cars are also expected to reach the end of their life over the next 12 years, and although a one-to-one replacement is unlikely, more box cars will need to be manufactured in the years to come, a Carter said.
In the short term, higher natural gas prices could encourage greater use of coal, thereby increasing the use of coal-fired cars, said Todd Tranausky, consultant and host of Carter and FTR.
Despite headwinds that could hamper car orders, lower train speeds this year are encouraging more inquiries as more cars are needed to support the same volume of traffic, Carter said. Railcar speeds through the end of August were down 8% year-on-year due to rail volume gains, port congestion and labor shortages.
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