The pulse may be
faint, but
there are
signs of life
in the scrap
metal business.
Opinions on
the state
of the market
and future
prospects
are mixed,
however, ranging
from pessimistic
to mildly
optimistic.
Even so, most
all the metal
recyclers
interviewed
are operating
with a tight
rein on operating
costs and
holding their
breath.
Dramatic slowdowns
by United
States scrap
generators
in heavy industry,
manufacturing,
especially
automotive,
aerospace,
machinery
and their
suppliers,
and in construction
have led to
tightening
supplies of
scrap metals.
Scrap metal
dealers, brokers
and processors
are finding
it harder
to acquire
scrap and
traveling
farther away
to secure
it.
Severe winter storms
across many
parts of the
country compounded
shortages.
Some believe
that scrap
metal commodity
prices have
bottomed out
and are slowly
beginning
to recover.
Looming over everything
are the yet
unknown ramifications
of the Buy
American provision
included in
the recently
passed $787
billion American
Recovery & Reinvestment
Act. No one
seems to understand
exactly how
the legislation
will be implemented
or how it
will affect
scrap steel
exports.
A firestorm of
protest from
many countries
and several
leading United
States manufacturers
has caused
Washington
to moderate
its position.
It seems likely
that federal
contractors
will be politically
motivated
to use domestically
produced steel
on infrastructure
projects while
our government
walks a tightrope
to meet World
Trade Organization
fair trade
codes and
trade treaties
with foreign
governments.
In any case, billions
in United States
stimulus spending
should increase
demand for scrap
metals as well
as create a stream
of scrap to ease
up shortages.
Domestic Scrap
Shortages
An example of the
shortage of scrap
was provided by
Universal Scrap
Metal (USM) based
in Chicago. It
is one of the Midwest’s
largest wholesalers
and processor of
scrap metal and
a major processor
of non-ferrous
scrap. USM buys
non-ferrous, ferrous,
precious metal
bearing, used beverage
cans, hi-temperature
alloys, electronic
and composite metal
scrap from industrial
and manufacturing
companies, recycling
centers and independent
scrap dealers.
“The only encouraging
sign we’ve seen
is on the sales
side. We can sell
whatever we can
produce. Prices
we can get are
good in relation
to where the prices
are in the marketplace.
It’s just that
we can’t find metal,”
said Phil Zeid,
USM’s president
and CEO.
Back in November,
USM had problems
selling, but now
customers are calling
and need metal.
Zeid believes that
demand is only
growing from the
standpoint that
his customers are
using up existing
inventory, not
necessarily because
their business
is getting better.
“I’ve been in the
business 26 years.
Usually when you
see a recession
in the metals market,
copper may get
strong and aluminum
might get weak,
stainless may get
weak and steel
gets strong. There
is always some
balance where some
metals or a group
of metals is strong.
In this case, everything
has plummeted,
but also the volumes
have come down
dramatically. We
could live with
these prices if
we had the volume
to sustain the
business.” Zeid
lamented.
When Kurt Rexius,
CEO of P&T
Metals Corporation,
a large metal recycler
in the Los Angeles
basin was queried
about how business
was, he had a one
word answer: “Terrible!”
But then he seemed
somewhat optimistic
and said that prices
have seemed to
stabilize over
the last three
or four weeks.
“Prices are in
a range where we
can operate our
business successfully,
but it’s still
a difficult time.
Margins and prices
have come down
and they’ve actually
stabilized, but
at a much lower
price than they
were just a year
ago,” he said.
“Prices have come
up since January,
roughly 10 to 15
percent. I think
the market has
bottomed.”
P&T’s biggest
problem is also
the supply of scrap.
Scrap availability
on the west coast
has been dramatically
affected by slowdowns
in aerospace and
home construction.
The machinists
strike last year
at Boeing dropped
2008 production
by 15 percent.
Many domestic and
international airlines
have either reduced
orders or put contracts
on hold. Fifteen
of Boeing’s 787
Dreamliner orders
were cancelled.
Boeing plans on
cutting 10,000
jobs, or 6 percent
of its workforce
this year. Production
at recreational
aircraft companies
has slowed and
business jet manufacturing
has virtually dried
up. “Directly and
indirectly, approximately
35 percent of my
business comes
from aerospace,”
said Rexius.
To acquire more
scrap, P&T
is being more aggressive
on price and going
farther away to
buy it, even buying
out of state. “When
business is good
people tend to
pick the low hanging
fruit, now everyone
has to reach out
to get scrap, which
of course drives
your margins down
due a larger investment
in time and higher
transportation
costs.”
About 60 percent
of P&T’s scrap
metal is exported,
primarily to Taiwan
and China with
minor shipments
to Japan. Rexius
reported that his
orders for exports
are actually starting
to pick up, mostly
from China.
Arthur Ames Scrap
Metal, based in
Newark, New Jersey
is a wholesaler
that buys a full
range of scrap
metals from factories
in and around New
York. Arthur Ames
buys all types
of scrap metal,
warehouses it and
sells most of its
inventory domestically
to companies that
may or may not
export. Steve Mersky,
vice president
of Arthur Ames
commented on market
conditions: “Scrap
metal is like the
rest of the world
now. The conditions
are not great,
business is off
and prices are
much lower than
have been over
the past few years.
But this past week,
all of a sudden
it’s starting to
inch up a bit.
I have a feeling
that it might open
up shortly.”
International Demand
On the international
front, scrap metal
volume seems to
be recovering.
“We are seeing
very strong demand
for scrap in China
and as unusual
as it may sound
it’s still an expanding
economy, which
is good,” said
Bob Stein, vice
president of non-ferrous
marketing and president
of the bureau of
international recycling
non-ferrous division
at Alter Trading
Corporation.
Stein confirmed
that there is strong
demand for non-ferrous
in China and that
Alter sells there
everyday, even
through the slowdown
in the Chinese
economy has weakened
their currency
against the dollar
making United States
scrap metal more
expensive there.
Most of Asia is
in the same predicament
as Western Europe
and the United
States because
of cut-backs in
auto production.
“The worst hit
of all the metals
is secondary aluminum.
That is an international
phenomenon because
a lot of that product
goes to the automotive
industry,” said
Stein.
India is a different
story. Not only
has their economy
slowed down, but
their currency
has also weakened
against the dollar
making United States
scrap metal even
more expensive
than in China.
Despite the slowdowns
in China and India,
Stein reported
that he can sell
every pound of
non-ferrous scrap
that Alter can
produce.
According to Stein,
scrap inventories
are low in China
and Asia, especially
copper. “Copper
prices seem to
be in a nice trading
range, certainly
when at the upper
end of that trading
range. Four or
five years ago
we were sitting
here scratching
our heads wondering
if copper would
go over a dollar.
It hit $4 dollars
last spring, but
those were explosive
times and they
were not reflecting
the true fundamentals
of the market.
It was highly speculative
and most speculation
is out of the market,
so maybe now a
buck and a half
is the right price
for a pound of
copper,” said Stein.
“I have a moderately
optimistic outlook.
We’ve already been
in a recession
for a year and
these things usually
last about 18 months
to 2 years. There
is light at the
end of the tunnel.”
Governments all
over the world
are pumping huge
amounts of money
into their economies
in the form of
bailouts and guarantees.
It may not have
an immediate impact,
but it should shortly
begin to stir economies,
get people buying
and get people
back to work.
“We are cautiously
optimistic that
infrastructure
spending in the
United Sates, in
China and other
countries will
help jumpstart
prices and demand
for our commodities.
Our theory has
always been it’s
not a question
of if it will rebound,
it’s a question
of when,” said
Bruce Savage, vice
president of communications
at Institute of
Scrap Recycling
Industries.
Things are always
clouded by the
events of the day,
we always think
it’s going to be
terrible forever,
but it is not.
