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Scrap downturn is a major change

Mar 23, 2015 | 08:00 PM | John Ambrosia


As the annual convention of the Institute of Scrap Recycling Industries approaches, to say that everything is not ideal in the ferrous scrap world would be a bit of an understatement. The first quarter of 2015 has presented scrap companies with their greatest
challenges since the Great Recession helped to lower prices near the end of 2008. It hasn’t been a bed of roses on the nonferrous
side, either.

With ferrous prices falling off between 30 and 40 percent during the first monthly markets of this year, many scrapyards found
themselves cutting back on hours, laying off staff and wondering how to survive this latest downturn.

Ferrous scrap has the fluctuating export market and import and alternative irons competition to contend with; beyond this, consolidations, mergers and mill vertical integration of scrap sources continue to present challenges; and scrap faces hurdles on the environmental regulations front and governmental efforts to rein in theft and fraud efforts.

Add to that the developing concerns over steel mill business, and business practices are often straining to keep up with the next
problem. But those companies that have and continue to be steady rather than mercurial succeed despite these obstacles. Practices including a willingness to innovate, to stress efficiency and safety, and to invest in new technologies and strategies contribute to the ability of a scrap venture to survive and thrive.

Scrap is usually a high-volume, low-margin business, which means that moving a lot of material through the yard cheaply and
efficiently is critical. When demand is low and scrap is in short supply, that can be a difficult objective to sustain.

Sellers who have made money during recent years—scrap prices reached historical annual average highs in 2011, but then slid back
in 2012 and 2013—did so by following good business practices and taking advantage of timing when factors were in their favor.
Even last year, when business was often stagnant, enough months saw strong mill demand, higher export demand and rising prices—or a combination of all three in a few rare exceptions—to drive good margins for those collecting and selling scrap, at least in short bursts. When these market factors are strong, the scrap business can lead to some extraordinarily profitable periods. But when they are weak or volatile, as they are to start 2015, times can be tough. They challenge business savvy and managerial instincts.



 

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