Metal recyclers cautiously optimistic
While U.S. manufacturing has been declining over the past couple of years, there has been recent recovery in the automotive sector and some signs of life in construction. Thankfully, for metal recyclers, global demand remains relatively strong for both ferrous and nonferrous metals from countries such as India, Brazil and China,
Despite a slowdown in Chinese economic growth of 7.6 percent in the second quarter from decades of 10 percent average annual growth, demand for reclaimed metals and most prices remain at relatively high levels, despite periodic fall-offs. However, the long-term economic fundamentals that have supported rising commodity prices over the past decade are substantial.
Rapid industrialization across Asia, particularly in China, continues to drive demand for metals used in a wide-range of construction and manufacturing applications as these countries build out their infrastructure base and export business.
Of course, market conditions for metal recyclers in the U.S. vary from state to state, company to company and scrap metal people differ in opinion on the current health and the near term prospects for the industry.
Since steelmaking is by far the largest metal category, and two out of every three tons of new steel is produced from old steel, the world outlook for new steel consumption is of vital importance for metal recyclers. Nancy Gravatt, vice president of communications for the American Iron and Steel Institute (AISI) provided her take on steel industry conditions, “We are now in a challenging period. We were forecasting perhaps a six percent increase in iron and steel shipments this year which would suggest some increased demand. Right now we seemed to have moved into a little bit of a manufacturing slump according to the latest numbers on jobs, construction and overall manufacturing. That’s a little bit disappointing now, but projecting into next year we expect to continue to see a slow but steady increase in demand. So far it’s been from the automotive and energy sectors, but a lot of construction analysts have been saying it has hit bottom and now we are beginning to see modest levels of construction activity picking up.”
“We know it’s an open global market and the foreign mills come here to shop for scrap just as they do in their own countries and elsewhere across the world,” said Greg Crawford, executive director of the Steel Recycling Institute (SRI). “But we are a scrap-rich country and it represents a good cash crop that’s also put to good use domestically.” SRI is an industry association that promotes and sustains the recycling of all steel products.
“We are cautiously optimistic as the recovery slowly tries to materialize,” Crawford reported. “Prices had slumped this year and have slowly worked towards rebounding. We see that everyone in business is waiting to see the national election results. It’s obviously difficult to make accurate predictions during these times of continuing economic uncertainty. As prices recovered somewhat, it happened fairly quickly so the drop did not have lasting effect, being a reflection of the ongoing market conditions. One cannot speak for the business community across the board, but it is fair to say that a lot of business activity is simply waiting to see how things will go forward.”
“Of course, scrap supply is coming in steadily at the prices being paid. There is enough scrap supply and, as economic conditions improve, more new cars will be purchased, and in turn more cars will be scrapped out, to make other new steel as the cycle continues. The construction industry will be doing more of the same thing with demolition work followed by new construction. So, it happens both ways – scrapping out the old and making the new steel for cans, cars and construction.”
“As the economy and society moves forward in the U.S., North America, and globally, old scrap comes in and new products are then made efficiently with fewer virgin resources. Recycling is part of the process whereby steel is at the heart of so much that happens in the environment, economics and society. In other words, recycling is a vital key to sustainability.”
“While the recovery has not happened yet, by any stretch of the imagination, once some of the nagging uncertainties are finally relieved, we can look to rosier times,” Crawford concluded.
No doubt we are a scrap rich country. Over the years, that fact has resulted in a large and robust scrap metal processing infrastructure. OmniSource is a large processor and distributor of scrap and secondary metal. Rich Brady, executive vice president for the ferrous commercial group at OmniSource Corporation, said, “We are in a period today of hyper-competition. Competitors are very aggressive and willing to pay some very strong numbers for inbound feedstock. As such, it has forced us to be really competitive on the buy side and look very hard at our processes to make sure we are buying material on a competitive basis, processing it efficiently and taking it to market in an aggressive fashion.
“There’s arguably excess capacity, particularly in the shredding side of the business and the demand remains spotty. When we see major shifts between the domestic consumers and export consumption we end up seeing market volatility in the pricing, which is something we have encountered over the past few months. I would tell you that the marketplace environment remains challenging. That’s evidenced by the financial performance of a lot of the larger publicly traded scrap companies. Those reorganizations and write-downs have been well documented. I expect we are going to continue to see more of the same.”
“I would definitely characterize my personal outlook today as less than optimistic,” Brady said. “I think there will be a fair amount of destocking in the supply chain in the fourth quarter as we have seen historically over the past few years, whether you are talking about steel, scrap or whatever industrial product.”
Brady mentioned a nagging challenge that is of increasing concern for all metal recyclers – government regulations. “One of the great challenges in regulations has been consistency. For us, with operations in multiple regional areas and states, getting clarity and consistency across the localized, statewide and regionalized entities is a real challenge. What you may do in one state may not be approved, or be completely different from what you see in another state as it relates to more of the commercial side of the business. As it relates to the operating side of the business, frankly we are trying to stay ahead of, or go a step above and beyond the compliance issues. We work very hard at being responsible from an environmental perspective and look at that as a way to differentiate ourselves from our competition.”
Energy costs, particularly fuel costs have impacted all metal recyclers as it has everyone involved in transportation. The scrap business, particularly on the ferrous side is incredibly freight sensitive. As such, fuel costs and the general increase in transportation expenses has definitely impacted the business and is as large a consideration as it has ever been. “You encounter that both on the inbound and the outbound side, but the freight expense on the rail and barge aspect has been a real challenge and something we have had to work at and address,” Brady concluded.
Greg Brown, president and chief executive officer of Raleigh Metal Recycling, Goldsboro Metal Recycling and Benlee Rolloff Trailers in North Carolina also weighed in on the state of the industry. “The amount of legislation is increasing, which is making business difficult. Business is fair, but margins and volumes are severely depressed. We’ve been cutting costs and trying to optimize our business and deliver great customer service. Energy costs have also impacted us dramatically. We have 13 full time drivers on the road and our vehicle fuel costs have gone through the roof. To deal with that we’ve installed GPS devices and use limited route planning. I’m cautiously optimistic, but business is under enormous pressure.”
Today it is definitely a challenging environment for metal recyclers as the U.S. economy slowly struggles forward. To cope in these times metal recyclers have to constantly look for creative ways to attract feedstock rather than waiting for it to show up at the scales. It’s a demanding environment where metal recyclers have to demonstrate value on both sides of the equation, both in sourcing scrap and selling it. Tough competition is forcing recyclers to differentiate themselves from competitors by adding value for the scrap generator as well as the scrap consumer. Spending time talking to customers, understanding their expectations and how to better perform for them can promote optimism under most any market conditions.