Dealing with shrinking profit margins
The main issue facing the scrap metal industry these days is deteriorating profit margins. It appears that increased competition for scrap metal has created bidding wars among large shredders resulting in premium scale prices to keep shredders running. This has resulted in tightening margins for large shredders, caused many to cut operating hours and some to shut down. In medium and large metro areas, small scrap dealers and feeder yards are in price wars with their competitors to acquire material, while at the same time playing one shredder against others to get top dollar for their scrap. Another dynamic is that medium to large scrap yards are being forced to pay top prices for heavy melting steel (HMS) that normally goes to make cut grades, but shredders are using it to feed their equipment.
Joseph C. Pickard, chief economist and director of commodities at the Institute of Scrap Metal Industries (ISRI) offered his input on current market conditions. “Margins are down partly due to competition for available feedstock. Not only for the last year or so, but competition has been rising for the last decade. The industry had developed a lot more capital equipment in terms of shredders and other processing capability pretty much widespread across the country. There are more people and more capacity competing for the same amount of metal, which can cut further into profit margins, especially when market prices are volatile. Although by historical standards prices today are not low, they are not where they were in 2011.” ...read more
Construction spending buoys C&D recyclers
In March 2006, U.S. spending on construction peaked at an annual rate of $1.2 trillion dollars. By February 2011, as the global financial crisis worked its way through the economy, that figure had slumped to barely $750 billion. Construction and demolition recycling generally tracks spending on construction, so for C&D recyclers that five-year period was largely one of unrelieved cutbacks.
Since then, however, the news from construction has been mostly good. And last November, seasonally adjusted construction spending hit $934 billion. That was up nearly six percent from a year earlier, and total construction spending appeared likely to top the trillion-dollar mark again early this year for the first time since the downturn.
For C&D recyclers, that means the sources and markets for recyclable and recycled construction and demolition materials have come a long way up from a long way down. “It definitely is back,” said Patti Hamilton, vice president at Sun Recycling in Davie, Florida. “2013 was a phenomenal year for us.” ...read more