Journalist Adam Minter and Electric Guard Dog LLCs top executive, Jack DeMao, met in person for the first time this past week at the Institute of Scrap Recycling Industries annual convention in Las Vegas, but they could hardly be considered strangers.
About six weeks earlier, after reading all 273 pages of Minters Junkyard Planet, DeMao, who heads a $20-million security company serving the recycling industry, among other industrial sectors, struck up a dialogue with the author on Twitter.
Over the course of an exchange, which was extended via e-mail and without Minter being aware of who he was communicating with, the two shared views of hot-topic buttons ranging from political turmoil in Turkey to trends in e-scrap and scrap theft deterrence. Tune in:
Jack DeMao: Will you cover the impact of political turmoil in Turkey on the ferrous scrap market in the United States?
Adam Minter: I would like to cover the Turkish scrap markets this year. So far, Ive neglected to get over there while Ive been busy in East Asia. Needless to say, however, political turmoil has the potential to have a significant long-term negative impact on ferrous prices. Im quite curious to see if the (South) Koreans, or even the Chinese, will be the beneficiary of this. In the past, the Koreans have been among the worlds most price-sensitive buyers. If prices drop below a certain level, they buy everything they can get their hands on and stockpile it if necessary.
DeMao: Any idea how Turkey got such a pivotal role? If prices drop, it could have a positive effect on U.S. ferrous producers.
Minter: Turkeys industrial policy favors heavy manufacturing and other businesses that demand large quantities of steel for both domestic and export industries. Wisely, Turkey decided to favor manufacturing steel from scrap rather than ores, and the results have been its world-beating scrap import markets. As to whether a price drop would be beneficial to U.S. ferrous producers, Im just not sure.
DeMao: What are some of the key trends in the e-scrap business in the United States?
Minter: I think two big trends are starting to emerge. First, servicing the re-use market is going to become a bigger and more important part of any e-scrap business that hopes to compete with Asian e-scrap recycling operations (and Im referring to large-scale, operationally and technically advanced recyclers here). For decades, as much as 80 percent of the profit generated by Asias e-scrap recyclers has come from re-use. So-called "developed" world recyclers will need to either match that or seek subsidies (either from government or business). The old model of shred and sort isnt sufficient in a world where components can be re-used. Second, I think were going to see manufacturers become much more active in the e-waste field, either by collecting and recycling products on their own or partnering with recyclers to do so. There are many reasons for thisrising commodity prices, a desire to control the market for reusable products, and straight-up profit motives. Whatever the reason, I think well soon see companies we only thought of as computer manufacturers become computer recyclers.
DeMao: What will be the impact of widening the Suez Canal on the price of the backhaul of scrap from the West Coast? Will there soon be a similar low-cost backhaul opportunity on the East Coast? Will the backhaul from the West Coast become more expensive?
Minter: Im not sure that itll have much of an impact. The Chinese government continues to support the building of container vessels, even at a time when theres already a global shipping glut. But it has always been Chinas goal to support cheap shipping, and I dont see any reason to believe that will change. In any case, I think Chinas shipbuilding industry will have a far more profound effect on shippingbackhauls and allthan the widening of the Suez (or Panama) canals.
DeMao: Right now there is a lot of speculation that the widening of the Suez Canal will shift freight from West Coast to East Coast. If this speculation pans out, could this cause the new, wider container ships calling on the East Coast to offer much cheaper backhaul rates to China andas a resultthe backhaul rates from the West Coast would go up? Again, this idea is very speculative.
Minter: Im going to do the modest thing here, and say that I just dont know. Im not enough of a logistics expert to feel comfortable speculating on the long-term prospects of East Coast vs. West Coast shipping rates.
DeMao: Do you see any trend across the U.S. in requiring scrap dealers to pay by check in order to reduce theft?
Minter: Definitely! I know from my own experience in a family business that we were gently pushed into doing so by the City of Minneapolis in the 1990s. I believe its now a city ordinance. The metal theft problem is driving this, of course, and I dont thinkat a time of rising commodity prices (over the long term)that will change. And, of course, if not checks, then I think well see more and more firms utilizing ATM-style payment systems.
DeMao: Moisés Naím in his book Illicit claims that 1/6th of world GDP (gross domestic product) comes from illicit activity; therefore, I dont think metal theft will diminish if commodity prices continue to rise. Do you think any of the high ideas like coating copper will have an effect on copper theft? Personally, I doubt it.
Minter: I think my initial answer wasnt quite clear. I think, as prices rise, metal theft will rise and so will efforts like requiring checks in lieu of cash. And I agreeI dont think coating copper will make any difference.
DeMao: What trends do you see in automated security to lower costs and improve security at recycling yards, i.e. electric security fencing?
Minter: To be honest, Im not an expert in scrapyard security. That noted, I see scrapyards spending more and more money on increasingly sophisticated security systems, especially in Asia and other developing economies. Though I have no data to prove this, my impression is that South America and China are probably the worlds two great growth regions for scrapyard security systems.
DeMao: What do you see in China as being effective in deterring thieves?
Minter: At the moment, the price of labor is cheap enough that the vast, vast majority of scrap companies rely upon security guards. At the same time, most scrapyards have laborers who live on-site and provide a sort of added level of security. Where you do see growth is in companies with very large nonferrous stocks, or other high-value scrap inventories such as circuit boards. In those cases, the human element tends to be supplemented with extensive CCTV (closed-circuit television) monitoring that, of course, relies upon recording and the human element to monitor. For companies with large stocks of high-grade nonferrous scrap, theres an increasing reliance on electrical fencing. But for now, at least, that seems to be (based on just what Ive seen) a very small part of the market.
DeMao: What ideas do you have for your next book?
Minter: I have something that Im starting to look at and Ive already discussed it with my agent and publisher. As a result, I cant reveal it publicly. But I will say that it involves another mostly unknown (to outsiders) business that has a profound influence on all of us. Ill be making a first reporting trip to look into itand whether this idea is viablein July.