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Scrap Metal Demand Drives Auto Recyclers to New Heights
by James I. Miller

It's a good time for auto recyclers. After years of spotty demand and depressed pricing for most scrap metals, demand for both ferrous and non-ferrous scrap has pushed pricing for output to the highest levels in nearly five years. In an industry where pricing can vary from day to day, or even hour to hour, this sustained upward trend is welcome relief for auto and truck recyclers across the country.

Harold Erb has been in the auto recycling business for more than 20 years. His southeastern United States operation processes more than 5,000 tons of recycled autos every month.

"About 50% of our volume is auto and truck bodies," reports Erb. "All of my crushers have been busy now, with output going to both domestic shredders and some overseas markets," he added.

With increased demand for scrap, pricing has been pushed to new heights. "We're seeing pricing up sharply over the past four months," said Erb. "Right up until last week, it's the best we've seen in over 5 years."

The Chinese Connection

Much of the recent demand for recycled auto metals is coming from the Chinese market. With five billion consumers and an economy based largely on manufacturing, Chinese consumption of U.S. scrap metal has been rising. Shredders were reporting outbound containers leaving their yards in large numbers. "It starts on the west coast," said Bob Mustafa, owner of Recycling Center in Madison, Indiana. "When all the available material is gone out there, demand moves east across the country. I have contacts on the east coast who were packing containers with both ferrous and non-ferrous scrap for customers in China," he said.

While exports of recycled metals have helped fuel the upward trend in pricing for recycled metals over several months, a more recent development has put the Asian market on hold for the moment. The outbreak of SARS - Severe Acute Respiratory Syndrome - has unsettled many of the Asian markets of late, and there's no predicting how long this situation may go on.
"Many of the metals buyers are quarantined right now," said Mustafa. "Until we know more about this disease, travel to and from many of our Asian customer countries will be restricted. It's the export strength of our scrap metals market that's gone soft just recently. We'll have to wait and see where this goes next," he added.

Adding to the uncertainty is the fact that the Chinese economy has been growing at seven to eight percent, and a slowdown is likely. But with a huge supply of low cost labor and more favorable conditions for foreign investors, the Chinese economy has enormous potential. Manufacturing plays an important part in that potential, and with it - a healthy demand for scrap metals from auto recycling. At roughly 10% of the total size of the U.S. economy, continued growth in China could mean long periods ahead of strong demand for recycled metals. Best estimates today are that it may take about 25 years for the Chinese economy to equal the current Gross Domestic Product of the United States.

As those questions loom on the Chinese market, scrap metal processors are focused more on selling domestically to hedge against any loss of business overseas.

But there are other factors that have led to higher pricing as well. After a long, tough winter, many auto recyclers have had a slow start to the new season. Weather-related shortages have boosted prices for certain recycled metals in regional markets across parts of the nation. Along with the weather, output from auto recyclers will soon heat up. With more material in the market, prices will stabilize or even retreat as supply catches up with demand.

While no one is complaining about higher prices, the common thread among auto recyclers is the emergence of what feels like a new set of rules for today's market. Lisa Hatfield, president of Mena Metals in west central Arkansas said, "We're pleased that pricing is much better now, but it's difficult to have faith that these better conditions will hold up. Years ago, the market was much more predictable. Today, it's a different ballgame with more factors affecting demand and pricing for our materials. We have plans for some new equipment - things we've put off until the market improved. Now that it has improved, we're left wondering just how long the good times will last," she said.





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