Nation's Auto Recyclers Remain Optimistic
Many Believe market downturn won't last
James I. Miller
“What goes up…must come down.” We’ve
heard the expression applied to nearly everything at one time or another.
While the past few months have been exciting times for metals and auto
recyclers, the current cooling off has been a welcomed relief for some.
Processing backlogs of material, upgrading equipment and even working
a bit less top the current list of priorities for many of the nation’s
Jeremy Lincoln, vice president – purchasing for
Erie, Pennsylvania based National Recycling Services, Inc. said, “Volume
is definitely way up. Material came out of the woodwork with the spring
thaw. Like everyone else, we just couldn’t process fast enough to
stay on the high side of the market. But we moved ahead with several capital
projects at just the right time, before demand went through the roof.
Over the next few months, the strength in the market caused us to expand
our base of suppliers by more than 50 miles beyond what had previously
been normal for us. Since demand has dropped a bit, inventory values fluctuate
daily, and the cost of capital has gone up some. Overall, we’re
in excellent shape and we’ll be ready when the market heats up again
soon,” he added.
Timing is everything and admittedly, the recent surge in the
market caught some recyclers off guard. To better prepare for the future,
many are looking back at what caused the spike.
strengthening U.S. economy drove domestic scrap steel consumption, with
factory orders up sharply for manufactured goods. This came at a time
when supplies were low and a good portion of the scrap industry –
including a huge number of auto recyclers – was already socked in
for the winter. The flow of material slowed, and then became scarce. As
the winter dragged on, supplies of available scrap disappeared throughout
much of the country.
That pattern in itself wasn’t so unusual. What
few were prepared for though, was the impact of huge export demands. Unprecedented
global demand for scrap metal took millions of tons of North American
material from the market at a time when meeting needs at home was challenging
enough. It was this combination of factors converging at the same time
that put a knot in the supply line and pushed pricing to record levels.
At its peak, material supply had increased to the point that
many auto recyclers refused any more inbound material. Some restricted
their business hours to focus full time on moving material through their
operations. Overtime was common, and even some weekends were spent in
the yard – the scrap yard.
With auto and metals recyclers firmly on their feet again,
capital investment projects that were sidelined for several years have
finally become orders for new equipment. Manufacturers and distributors
of both new and used auto recycling equipment report sales have been sizzling.
John Sacco, president of Sierra International Machinery,
Inc. of Bakersfield, California commented, “Recycling equipment
sales follow scrap prices. Now that everyone is making money again, a
lot of orders for equipment that were postponed through the lean times
have been placed. Our sales are very strong because recyclers that wanted
the full package of product, service and support that we offer waited
until they were ready to move. We expect sales and orders for new equipment
will be strong at least for another six months. As long as the industry
remains confident, the good times we enjoy right now should last,”
In central Minnesota, Jeff Hebbert, sales manager for
Overbuilt, Inc., manufacturers of auto crushers said, “Even with
the current softening of scrap prices, it hasn’t affect equipment
sales at all. We’re booked out through September right now. But
with new steel prices moving so fast, especially on high tensile T-1 and
the heavier grades we use, our pricing on new quotes is guaranteed for
72 hours. Some manufacturers have been forced to quote day by day. Others
include an escalator clause that could increase the cost of equipment
based on new steel prices when the build order hits the shop floor,”
While it’s not likely that all of the conditions that
created such demand and high prices for scrap will occur at the same time
again soon, lessons from the most recent rally may help recyclers prepare
in advance for the next upswing.
Norm Eaton, vice president of Lincoln Metals, Inc. sees
a strong market again just down the road. “Over the next few months,
I expect some slight price movement in both directions, but for the most
part, it should hold steady. The current supply of scrap is good for the
melt rate we see at the mills. As long as that holds, pricing should remain
largely unchanged,” he said.
But into the last quarter of this year, things could
heat up all over again. “Exports will pull a lot of material from
the market again,” continued Eaton. “That should push scrap
prices right back to where they were recently – and could go higher,”
Many insiders expect the industry will apply what was
learned from the recent past to reduce the interruptions in supply and
avoid any cost penalties resulting from a shortage. Domestic steel producers
were forced to pay high prices for material to fuel their scrap-fed furnaces
and aren’t likely to be caught off guard again late in the year.
In turn, steel buyers faced surcharges on new coil, bar and flat rolled
products also from tight supply. Purchase contracts will likely be placed
sooner, giving scrap processors and steel makers a running start on meeting
Marty Wilhelm, president of Youngstown Iron & Metal,
Inc., Cleveland, Ohio observed, “Industrial scrap will be steady
at best, but heavy melt pricing may slip. There’s a lot of deconstruction
activity breaking loose that was postponed until pricing improved. The
influx of these construction grades in the market may bring those numbers
down some. But auto shred is a different story. Mills will be more aggressive
with their buying this fall, and they’ll probably get started much
sooner than they did last year,” he said. “That will flatten
the spike in demand some, and spread it out over a longer period of time,”
he added. Auto recycling accounts for about 70% of the firm’s business.
Anytime market forecasts are made, there are factors
outside of anyone’s control that could ultimately impact outcomes
the most. “One of those factors is the strength of our dollar,”
said Marty Wilhelm. “With the current value of the U.S. dollar,
a lot of foreign traders aren’t very attracted to us,” he
“Things are good, and overall, auto recyclers are
in a much better position than they were a year ago,” said Jeff
Hebbert. “The current slowdown is right on time, and it’s
a great opportunity to prepare for even better times ahead.”