Several insightful comments came from the
panelists at AMM's Scrap Conference in November. One
in particular sparked my interest. It was the suggestion that
scrap processors and others are driven to consolidate because
major manufacturing companies-industrial scrap generators-want
to deal with a single processor who will handle all the scrap
metal from their production plants.
Scrap processors have the distinct experience
of serving two customers-the steel mills and smelters that buy
and melt scrap, and the manufacturers that generate scrap as
by-products. The auto industry's factory bundles are perhaps
the best example of scrap generators-some stamping plants
produce as much as 15,000 tons of baled steel scrap a month. At
$300-plus per ton, those bundles are not waste-it's another
product line for auto companies. It may not be as profitable as
a Cadillac Escalade or even a Toyota Camry, but selling it
wisely can offset some of the costs of production.
All of the nation's auto manufacturers aren't
the size of General Motors Corp. Many are smaller, but they
still generate enough scrap to make it worthwhile to recover.
Scrapyards often were founded by individuals who had enough
entrepreneurial spirit to believe they could make a buck or two
from the material. They were-and many still remain-local
businesses. Expansion often was achieved by opening a feeder
yard in the next town, collecting scrap there and hauling it to
the main yard to be baled or sheared. Scrap dealers and
processors often refer to these small manufacturers and scrap
peddlers as their customers, and they have been chided by
steelmakers and some in their own ranks for not seeing steel
mills and nonferrous metal smelters-companies that buy prepared
scrap-as their customers.
That's not the way the game has been played,
though, according to many seasoned scrap traders. Money is made
on the buying side, not the selling side. Whether it's a bid
for auto bundles or a contract based on a published price, the
margins often are set at the buying point in the cycle. That's
why some dealers are willing to hold scrap-laying it down in
their yards-instead of selling it in a declining market and
That rule, and that game, are changing. Even
before steel scrap prices reached the record levels seen in
2004, manufacturing companies, utilities and others with
substantial capital assets were looking to maximize the return
on their investments, even when they were discarding them. It
is no longer just an annoying, additional task for someone in
the purchasing department to handle. Some companies employ
managers whose sole task is to make sure they get the best
prices for production scrap or a plant that is to be
demolished. GM, for example, aptly named it workers in this
unit "the Scrap Team."
At the same time, the pool of much-needed
industrial scrap has been steadily dwindling. Many
manufacturers that supply components and parts to GM or
Whirlpool Corp. have relocated to other shores where labor and
other costs are lower. But they don't ship the scrap back here
with the parts.
At the same time, the steel industry is
changing. Thin-slab casting technology has opened the gates of
the flat-rolled sheet market to mini-mills. Twenty years ago,
many integrated steelmakers were content to cede lower-margin
products like reinforcing bar to the mini-mills. They still had
the sheet market, and nobody could take that away. Right? The
late Kenneth Iverson and his team of can-do managers at Nucor
Corp. helped shatter that self-assurance.
The largest scrap players have accepted the
change ushered-in by the rise of the flat-rolled mini-mill and
are doing more than just "dealing with it." For instance, they
can collect all the steel scrap from one large steel service
center's plants to offer to steel mills and foundries. At the
same time, the service center has a benchmark to gauge the
value recovered for its scrap regardless of its location.
To be sure, there are many other factors
driving the scrap industry's consolidation trend. Scrap
processors' desires to attain a financial footing that matched
the nation's steelmakers is another. Others may be selling out
because they need an exit strategy-an aging owner, for example,
with no one in the family interested in taking over the
Regardless, control of what is steadily
becoming a scarce commodity could be the main reason why in
five years-or maybe in just two-we'll see fewer but larger
players in the scrap game.
Finally, on a more personal note, a doctor's
order prohibited me from traveling to AMM's Scrap
Conference in Scottsdale, Ariz. Fortunately, my co-workers
brought home full reports, keeping me well informed of all the
insights offered by our conference speakers.
Before I sign off, I want to take a minute to
correct two mis-statements in our December edition. In last
month's column, the reason cited for TJN Enterprises'
withdrawal of its plans to expand operations in Sioux Falls,
S.D., was incorrect. TJN shelved the plans because its option
to buy 32 acres of land near the municipal airport had expired,
not because of any inaction by city officials. It seems my
arithmetic didn't add up, either. OmniSource Corp. processes
800 million pounds of nonferrous scrap metal a year, not the
figure cited in November's Month In Metals section.