The scrap industry is losing some of its
human flavor as bazaar-style haggling becomes a breach of
norms, digital auctions at computer terminals become more
common and law enforcement's needs create gigabytes of
The evaporation of Wabash Alloys LLC into
Aleris International Inc. is part of the shift. Aleris, in
existence for three years, has become the No. 1 U.S. secondary
smelter group in aluminum. Its corporate style, even before
reaching the top, has been to act decisively with little
patience for dickering.
Aleris stations all its scrap buyers at headquarters, not at
the smelters and sheet mills receiving the shipments. "The
Aleris folks are much more disciplined in their approach to
pricing," one scrap manager said. "There's a little bit more
play with the other guys-more back and forth with Wabash and
some of the other smelters-than with Aleris."
And Aleris' shopping lists reputedly are
written in stone in terms of quantity and grades of scrap.
Before Aleris took charge, "we could call (the Michigan smelter
in) Coldwater with five, six, seven items I want to sell.
What's your price on borings, what's your price on this, and
make deals predicated on those items," one seller said. "Now
they make the call and you have to be ready to supply whatever
it is they want." There's no longer room for the seller to
influence which grades will go into a particular shipment, he
Some smelters can be lobbied to use a yard's
exotic scrap grades as an input to short runs of exotic alloys,
another scrap manager said, but Aleris' management style
doesn't allow for that sort of influence.
A different sort of impediment to
idiosyncratic dealmaking is sales via Web auctions. Discarded
metals at domestic military bases, for example, are now
marketed through the Internet, grossing $55.3 million in the 12
months ended June 30. The bid screens for every available lot
can be viewed in real time from anywhere. Registered bidders
get instant feedback on the latest top offer and can increase
their previous bids over a period of several days.
Most of the time, the U.S. Defense Department
auctions are for material already accumulated, available for
immediate pickup at a specific military base. Occasionally, the
Defense Department auctions a lot expected to be generated over
the next 12 months at a particular location.
Before the advent of military Web auctions,
the typical arrangement was for scrap processors near a base to
submit annual bids, with escalator clauses pegged to a price in
AMM or some other publication. The nationwide Web
auctioneer, Government Liquidation LLC, Scottsdale, Ariz.,
almost never includes escalator clauses in its auction
Whether auctions are appropriate for scrap
metal was debated recently, pitting Steven Gilbert of Global
Recycling Inc., Charlotte, N.C., against Ralph Pinkert, senior
vice president at a Chicago-based electronic auction house
called ScrapSite Management Science Associates Inc. ScrapSite's
auction lists are skewed toward export grades, particularly
electric motors and the unsorted nonferrous output stream from
shredders known as zorba.
Gilbert, who sells electric motor scrap to
Asian markets, told a magazine interviewer that online scrap
auctions "impersonalize the industry and create a price-driven
race to the bottom. I think the process cheapens our business
because it doesn't nurture long-term relationships or give
parties the opportunity to deal."
Pinkert wrote a rebuttal defending auctions
as a pricing tool suitable for companies with robust
relationships, not just for those wary of unfamiliar traders.
Unlike the Defense Department's scrap auctions, those run by
Pinkert's company can be configured to restrict the list of
potential bidders. They also can allow the seller to close the
deal with a buyer who isn't the highest bidder.
One ingenious option at ScrapSite offers an
arena that emulates how people haggle by limiting the precision
of the feedback. That method, which is called a "ranked
sealed-bid auction," doesn't disclose the latest high bid to
potential buyers. During the auction, the top three bidders are
informed electronically how they rank, while the others are
told that they are bringing up the rear. Based on that
information, potential buyers must choose whether and how much
to increase their previous bids.
The erosion of informal buyer-seller ties in
the scrap business is also manifest in the stringent regulation
of "over the scale" transactions in many jurisdictions designed
to detect stolen property.
Local ordinances and state laws increasingly
require extensive identification from peddlers bringing in
scrap. Sometimes fingerprints are required, and sometimes there
are payment conditions that simplify tracking the seller later
on if police wish to do so. Buyers needn't take their shoes off
for inspection, but otherwise a scrap purchase counter can feel
like an airport departure terminal these days.
An Arizona law that took effect Aug. 31
requires scrapyards' purchase records to include photos of the
scrap and the seller, along with a thumbprint. Payment for some
types of transactions must be by check through the mail.
Columbus, Ohio, passed an ordinance in July
requiring thumbprints. Eventually, yards will have to supply
daily electronic reports of their transactions to police or
else hold material for seven days.
Detroit now requires special permits for
vehicles used to gather scrap, even if the driver doesn't have
a formal recycling business.
A California scrapyard, Bruno's Iron &
Metal Co., is resisting one recent ordinance in court. "Fresno
County cannot unilaterally set aside the legal right of four
businesses to pay their debts in cash," the recycler
California scrapyards, lobbying at the state
level, came up with an inventive provision to ease the burden
on their most active peddlers. A peddler would be treated
similarly to a corporate scrap source in terms of
identification and payments if he had dealings with the yard
five or more times a month for three consecutive months. That
provision made it into a compromise bill, but the coalition
backing the proposal eventually fell apart. The California Farm
Bureau Federation instead urged local governments to enact
their own ordinances on what precautions scrapyards should take
against stolen property.