And so it came to pass that the last of the Big Three
(though they were no longer as big and were now more than
three) proclaimed that factory bundles would no longer be sold
And was there great wailing and moaning throughout the land?
There were a few dealers and scrap buyers who wondered
aloud, "How will we know what to sell or buy scrap for?" Then
they went back to their usual monthly go-rounds of haggling and
bargaining-the same way that the buying and selling of scrap
metal has been done for decades. Sure, the auto bundles did
provide a starting point for some, but it was never carved in
stone that grades like No. 1 dealer bundles and No. 1 busheling
would rise or fall by the same dollar amount.
There has always been some measure of give and take in
ferrous scrap transactions, sometimes not on the most polite
terms, with irate buyers or sellers sometimes trading a few
choice words. Maybe this wasn't as tactful as Miss Manners
would recommend, but deals got done and the same buyers and
sellers would be back on the phone again the following month
Twenty years ago General Motors Corp., Ford Motor Co. and
Chrysler Corp. all sold their upcoming month's output of baled
sheet steel scrap-usually totaling around 150,000 long
tons-within a day of each other. Normally this occurred about
five working days before the end of the month; in that five-day
span, buyers and sellers were able to haggle.
Detroit-based GM halted its auctions in the mid-1980s and
set up buybacks, or contract sales, with steelmakers. Ford
slowly cut back the number of plants from which it sold bundles
until only a few thousand tons were sold each month from its
big Chicago plant, and the Dearborn, Mich.-based automaker
hasn't sold a single bundle on the open market from that
facility in almost two years.
The last to abandon the auction block was Auburn Hills,
Mich.-based Chrysler, which announced a few months ago that it
would no longer auction its bundles each month. Instead, the
automaker said it would sell them on a formula tied to a
published price. Whether that will still be the company's
practice is uncertain at this time. What is clear, as one of
its managers said at an AMM/World Steel Dynamics Inc.
Steel Success Strategies conference earlier this decade, was
that auctioning the bundles wasn't part of the company's
But steelmaking hasn't come to a screeching halt because
scrap sellers and buyers no longer have a factory bundle price,
which was a comfortable-but outdated and often
unrepresentative-price of industrial steel scrap, and junk
vehicles aren't piling up on city streets.
Market participants will always find or devise new
mechanisms. For example, scrap buyers and sellers complained
when the auto bundle sales were shifted to the last day of the
month or into the next month, but industry veterans had already
done some polling and had a fair idea of what they would pay
for, say, shredded scrap.
But the most critical issue was never pricing. It is
Today, unlike several decades ago, few steel mills carry
much inventory at the mill. Some might have only a few days
worth and others a week or more, but none carries the
traditional month or more of supply. That practice prevailed in
the 1960s and 1970s, but better inventory management practices
and freight scheduling has allowed many to operate without huge
piles of scrap outside their melt shops.
That also has put more stress on the cardinal rule for the
scrap buyer at a steel mill never run out of scrap. You can pay
more for material, but don't run out. They'll fire you for
that, and for good reason No executive wants several hundred
workers standing around waiting for a rail car or a single
truck full of scrap to arrive.
So many buyers at steel mills and their most trusted scrap
suppliers have come to what lawyers like to call a "meeting of
the minds." They hashed out a mechanism to use when ferrous
scrap prices are gyrating wildly and no one is sure what the
final price will be. It's called the "price-to-be-determined"
While few might be pleased with the process, since they
would prefer to know the price for 10,000 tons of busheling
ahead of time, the mechanism-and not the price of factory
bundles-has kept scrap flowing to the melt shops.