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Small-fry recyclers getting blown away by the big guns

Apr 24, 2014 | 08:00 PM | Lisa Gordon

Tags  metal recycler, ferrous scrap, nonferrous scrap, Skyline Steel, Paula Shaver, Lisa Gordon

Large scrap metal recyclers may be facing shrinking margins, but mom-and-pop scrapyards are facing extinction. Competition from players with deep pockets, plus regulatory and environmental requirements as well as state laws aimed at metal theft, oftentimes make it unfeasible for the little guy to continue.

Some might argue that it is time to right-size the industry, but it is disheartening to watch smaller operations that have been long-standing local institutions exit the recycling business.

One only has to read the headlines to see that bankruptcy filings by recyclers—usually smaller-sized companies—are becoming commonplace, along with a multitude of other closures either due to banks calling in notes or companies quietly closing their doors.

Canon City, Colo.-based Skyline Steel LLC, which has been in operation for 50 years, has its roots in metal recycling but was forced to exit that part of its business recently. Skyline decided to call it quits after receiving a letter from the local sheriff’s department outlining state laws aimed at dealing with metal thefts.

“My heart is heavy, but I did the math for what we would be required to do and it was just crazy,” owner Paula Shaver said. Video cameras and an overhaul of the company’s computers were overkill for a business that bought an average of 100 tons of ferrous scrap and 25 tons of nonferrous scrap monthly. “We weren’t going to retire off the scrap, but it was convenient for the town, kept people working and was partly sentimental because my grandfather started the business as a scrapyard,” Shaver said.

Locals will now have to travel 10 miles to the nearest scrapyard, she said. “It is sad, because there are some people with special needs in the area who looked forward to bringing in cans in their weekly visit here.”

Skyline, which remains viable through its sales of drainage products, sold its can denser, shear, two balers and a roll-off truck to a Penrose, Colo., recycler. The company employed three people in its scrap segment; one has left, and Shaver is struggling to keep the two remaining employees.

Shaver said she understands the need to address metal thefts and noted that her company cooperated with law enforcement, but visits to the scrapyard by police looking for stolen material could be disruptive. “If someone would be missing a little thing that we may have paid $7 for, the sheriff was down here looking for it. Often the item didn’t turn up and we wasted two hours of man time looking for something we didn’t have,” she said. “Big government is not good for small business.”

Bigger businesses are apparently not good for small business either.

The owner of an East Coast salvage yard and recycler that closed last fall now spends his time selling his equipment and doing odd jobs. Over the course of a few years, he watched his annual tonnage dwindle from 23,500 tons to an amount that he described as pitiful.

The recycler’s troubles began after the steel market collapsed in 2008, but he was recovering and able to ferret out a decent living until a large player opened up less than a mile from his site. “They came in here telling everyone they would put me out of business, and they did,” he said. His biggest regret now is that he didn’t throw in the towel sooner. “Hindsight is 20/20, and looking back I would have certainly closed and cut my losses. I hung on for three years and used up my savings.”

The competitor initially raised his scale rate by 50 cents per hundredweight ($10 per ton) over the smaller player. “Right away I could feel the pinch and drop in tons,” the recycler said. In the end, his competitor was paying $2 per cwt ($40 per ton) more.

And the competitor didn’t take aim just at scale prices—it also went for the recycler’s other accounts. The East Coast recycler was paying a customer a negotiated price for loads of cars delivered to his yard, but the competition was willing to pay more for the loads and pick up the vehicles.

The irony is that shredders raised their prices the same month the East Coast recycler finally closed his doors. His competitor, which now had a monopoly, bucked the trend and lowered its scale prices.

In Oklahoma, a recyclers association lobbied to have recyclers show proof of stormwater permits and other pricey investments. The association’s aim was to weed out the bad apples and lower metal theft, but it also pushed the small players with less than a handful of employees—which didn’t have the means to make large investments—to close their doors.

Just as independent hardware stores have been replaced by the big-box chain stores, smaller scrapyards might be discovering they are unable to compete with the bigger players.

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