Demolition contractors aren't sitting on a mountain of unsold metal and while signs of a pickup in business are beginning to emerge, on a flat hill an uptick doesn't necessarily amount to much.
The demolition industry, which provides cut plate and structural scrap and heavy melt to scrap processors and steel mills, has hit bottom and is now beginning a slow rebound, but the recovery is unlikely to be very dramatic, according to Drew Lammers, vice president of the demolition arm of Cohen Brothers Inc., a Middletown, Ohio-based scrap processor, and a past president of the National Demolition Association (NDA). "It is now starting a slow uptick, but that hill is very flat. It is a slow uptick."
The tight credit market means developers are having a hard time getting money to tear down old buildings and construct new facilities, so any material from demolished buildings is turned around immediately. "We turn it over as soon we demolish it because we build into our price the value of that scrap. (It) is very important to cash flow and the overall bottom line to the demolition contractor's business," Lammers said.
There is less demolition work being done today, but it is strictly a consequence of the nation's slow economy, he said. The credit market is tight and both commercial building and housing developers are having a hard time getting the financing to begin a new construction project.
One key to future increases in demolition activity is the redevelopment of so-called brownfield sites, another industry executive said. The abandoned or under-used industrial and commercial facilities normally have some contamination from past industrial use that must be treated, and in some instances hauled to a hazardous waste disposal site, but they aren't among the sites deemed Superfunds by the U.S. Environmental Protection Agency (EPA), he said.
The cleanup of brownfield sites is largely regulated by state environmental agencies in cooperation with the EPA. The federal and state governments can provide technical help and some funding to clean up designated sites, and sometimes can provide tax incentives for a cleanup that isn't paid for outright. Whatever the work to be done, it typically yields scrap metals to be sold to recyclers and subsequently steel mills or nonferrous smelters.
Much of the development work in cities often includes sites already occupied by a building. That's where the demolition contractor's role comes in. Some are hired to clear the property down to dirt, while others might be gutting the interior of an old factory that will be turned into housing or a commercial facility like a department store. One prominent example was the gutting of a building that was part of the sprawling Bethlehem Steel Corp. plant in Bethlehem, Pa. It's now a gambling casino.
Doylestown, Pa.-based NDA said a recent survey of its members shows that many of them are optimistic for the remainder of 2010. Nearly one-third of members said they expect to tear down more buildings this year, while more than 25 percent see industry activity remaining the same as the previous year. Only 19 percent said they expect their business to decline this year.
"Our industry is populated in large part by entrepreneurs," Michael R. Taylor, NDA's executive director, said in a statement. "While they are well acquainted with business realities, they also tend to be optimistic and look for opportunities even when the economy is so challenging."
As for scrap pricing, approximately one-third expect tags to remain the same in 2010, nearly 30 percent expect prices to increase and another third were either undecided or expecting scrap prices to decline.
The NDA represents about 1,000 U.S. and Canadian companies and many international firms involved in demolition work.
A major demolition job would be something like an auto manufacturing plant, which might yield as much as 15,000 long tons of structural scrap, steel siding and roofing, Lammers said. Many of those jobs are finished now. The automakers have torn down the buildings they wanted to tear down and have either mothballed or are trying to sell off the others. If they don't, they eventually will tear those down as well, he said.
There are plenty of big demolition projects, but the contracts haven't yet been issued. "The big development companies are not going to spend the money right now until their bottom lines have improved and they are seeing good positive cash flow," he said.
Still, scrapyards are seeing a steady flow of obsolete scrap from wrecking jobs, Lammers said, noting that domestic steelmakers are gobbling up the plate and structural scrap as fast as they can.
These might not be the big demolition jobs like old sports stadiums or aged auto plants, but scrapyards have varying definitions of what constitutes a large demolition job.
A demolition project that yields 200 tons of plate and structural scrap might be a big job for some scrap companies, while others are looking for 1,000, 3,000 or 5,000 tons. There is a demolition contractor in Columbus, Ohio, tearing down an old Delphi Automotive LLP plant that has about 10,000 tons of plate and structural scrap.
While the plate and structural scrap is readily sold to domestic steel mills, the secondary grades like No. 1 heavy melt or mixed scrap might be going overseas, particularly from those areas close to export yards. "We don't do much in exports because we still have many steel mills right around us," Lammers said.
Some scrap also is bypassing the scrapyards entirely, he said, noting that scrap brokers are dealing directly with demolition contractors, telling them the length they want it cut and letting them ship it from the demolition site directly to the mills. MICHAEL MARLEY