Discounting is a fact of life. A damaged product will almost
always be cheaper than an undamaged one. But don't expect a
sliding scale based on the level of damage, because market
conditions play the most significant role in determining the
We see it all the time in appliances, with
"scratch-and-dent" sales by stores looking to move damaged
merchandise. Washers and dryers, refrigerators and air
conditioners often suffer a minor scratch or dent between the
manufacturing plant and the showroom floor. Shoppers who are
content to hide such an imperfection, sometimes as easily as
covering it with a refrigerator magnet, or who can live with
the blemish can find themselves receiving significant financial
benefit as the damaged goods are priced lower strictly as a
means of getting them off the showroom floor.
It's much the same with the market for secondary steel.
Steel coils can be-and are-damaged in any number of ways, but
that doesn't mean those coils immediately are turned into
scrap. Far from it. Most find a home, usually in an unexposed
application where the fact that they contain pits, skid marks,
scratches, slashes or dents means nothing.
"It's probably unique in some respects that there is such a
market for secondary or damaged steel," said Jim Barnett,
president of Grand Steel Products Inc., Wixom, Mich., a
flat-rolled steel service center that buys and sells secondary
steel products. "But that steel has to be sold. It has to find
Barnett also is president of the Association of Steel
Distributors (ASD). Many of the group's members buy and sell
both primary and secondary steel products, and some specialize
in the processing of secondary steel for distribution to a wide
customer base. They source the steel from any number of
locations-steel mills who have had product rejected by
customers, steel traders who bring in material damaged in
transport, or their own internal rejects.
The imperfections in the steel are sometimes minor.
Automakers, for example, have zero tolerance for imperfections
based on their need to use sheet for exposed auto parts, such
as fenders and hoods. While consumers might not mind a scratch
on a dryer that no one will see in their basement, few will
accept one on the hood of their new car.
"Clearly the highest-quality requirements and most
restrictive tolerances in terms of flat-rolled are from the
automobile manufacturers," Barnett said. "The highest rejection
rates are for automotive-grade steels."
Most estimates put the U.S. market for steel products at
close to 100 million tons per year, although steel consumption
was down in 2009 due to the global recession and likely will
remain below that level this year. Many sources estimate that
in a 100-million-ton market, secondary steel-the damaged
product-accounts for about 5 million tons per year.
"There are any number of ways you can sell it-a lot of
customers are looking for secondary," Steve Gottlieb, vice
president of Ratner Steel Supply Co. Inc., Roseville, Minn.,
said. "There are underground applications and things like that
where the steel is not going to be seen. People will powder
coat the steel and that might cover up a problem. The benefit
to them, of course, is that they are able to buy it at a
"It's something that the mills don't want to have happen,
but when it does they have to find a place for that steel,"
Gottlieb said. "It's a market that usually tracks the primary
market pretty closely in terms of demand. But there are times
when you'll see a shift, like we did (in 2008) when demand was
really strong. At that time, there were people who needed steel
and they were paying prices for secondary that were pretty
close to the same as (what was being paid) for prime."
Ratner Steel works in both the primary and secondary
markets, with secondary or excess steel products accounting for
about 10 percent of its sales.
David Fischer, vice president of IM Steel Inc., Bourbonnais,
Ill., said his service center deals mostly in secondary plate
products. Imperfections in plate might be as simple as a mill
needing to roll 72-inch wide product and ending up with product
measuring only 71 inches wide. At other times, thicknesses or
yield strengths aren't exactly what the original customer
sought so the product is rejected-but another customer might
easily be able to use the material in a different
"When you look at it, a lot of times you would not know the
difference (between secondary and prime)," he said. "One might
have a mill edge instead of a cut. It's hardly noticeable, but
sometimes it makes a difference to the buyer."
On the plate side, demand characteristics for prime and
secondary materials often run hand in hand, Fischer said. "No
one wants to buy high and sell low," he said. "We did that last
year. What we find is that for our (secondary) product, we end
up selling to a lot of other service centers. We don't sell
much to end-users."
Barnett, Gottlieb and Fischer, looking at the secondary
market from the viewpoint of sellers, said there is no real
discount formula in place for secondary steel. A buyer can't
necessarily approach them for a deal with the idea that if
prime product costs X dollars, secondary can be bought for X
"There is a price you base your numbers on and sometimes the
gap between the two is wider than it is at other times,"
Fischer said. "Price really depends on supply and demand.
That's one thing that doesn't really change." SCOTT