The past decade has been an
interesting one for the scrap industry, to say the least.
Demand has blossomed, prices have soared and profit margins for
the most part have been good.
Yet just a little more than two
years ago, markets were in a state of near-panic after domestic
mill productivity plunged to its lowest point in history and
export demand nosedived. No one then thought that prices would
soon rebound to historically high levels, but yet thats
where they are today.
Ferrous scrap prices are the
best ever for a first quarter, well ahead of the same period in
the boom year of 2008 (though to be fair, April 2008 began the
second quarter with a huge increase in what turned out to be a
run-up to all-time-high prices; such a dramatic repeat
performance seems doubtful this year).
Similar fortunes also are true,
to take just a few examples, for used beverage cans, No. 1
brass mill copper and stainless 304 solids and clips, which
this year have either reached average annualized all-time highs
(aluminum and copper scrap) or come close to them (stainless
The average annual value of all
these scrap items taken together so far in 2011 is 327 percent
higher than it was 10 years ago. By comparison over the past
decade, job growth averaged zero, wages were flat to down
slightly, overall energy costs were up about 77 percent and
benefit costs (health care, pensions, etc.) were up between 27
and 64 percent, depending on the source and the benefits
included. Even the Dow Jones Industrial Average is up only 17.5
percent from 10 years ago.
So on the whole, the years
leading up to and including 2011 have seen the value received
for scrap outpace most expenses. This has meant that despite
the usual peaks and valleysand the monthly fluctuations
of each market cyclebusiness has been good overall.
Thats not to say that
everything is rosy today. As stories in this issue show,
ferrous scrap has the ever-changing export market as well as
import and alternative iron competition to contend with; beyond
this, consolidations, mergers and mill vertical integration of
scrap sources continue to present challenges. On the nonferrous
side, the industry faces tougher environmental regulations as
well as governmental efforts to rein in theft and fraud.
Add to that the developing
concerns over rising fuel costs and the scarcity of rail cars,
and business practices often are straining to keep up with the
next problem. But those businesses that have, and continue to
be steady rather than mercurial, succeed despite these
challenges. Practices including a willingness to innovate, to
stress efficiency and safety and to invest in new technologies
and strategies contribute to the ability of a scrap venture to
survive and, yes, thrive.
Scrap usually is a high-volume,
low-margin business, which means that moving a lot of material
through a yard cheaply and efficiently is critical. When demand
is low and scrap is in short supply, that can be a difficult
objective to sustain. However, the difficulty should not stand
in the way of moves that will improve those aspects of the
Those sellers who have made
money during the past two years did so by following good
business practices and taking advantage of timing when factors
were in their favor. Enough months saw strong mill demand, high
export demand and rising pricesor a combination of all
three in a few, rare exceptionsto drive good margins for
those collecting and selling scrap.
When these issues are strong,
the scrap business can lead to some extraordinarily profitable
periods; when they are weak, times are tough. But when they are
mixed, like during the 2008-2010 stretch, they challenge
business savvy and managerial instincts.
Of course, such an approach is
not a guarantee of better business. Ultimately, scrap dealers
have no more objective insight than anyone else involved in the
economy on when consumer buying will increase, foreign demand
will spike upward or steel productivity will rebound.
Yet one of the most important
skills needed in running a thriving scrapyard is being able to
manage the business through the cyclical periods of declining
revenue. That means anticipating market trends and making
investments that make sense for todays environment and
Scrap businesses should not lose
sight of their competition, their role in the local market,
their long-term customers, their communities and their goals.
Being aware of such thingsalong with getting a handle on
those issues that are more or less at the sole discretion of
the yard owneris the simple yet essential secret to
Despite all the risks and
challenges, many sellers keep up a "the skys the limit"
attitude toward growth and profit. And the more successful
businesses view the natural volatility of the industry as just
another truth to factor into planning. Such an approach, they
say, can lead to innovation and greater self-knowledge about
Such thinking can make the next decade as dramatically
successful and profitable as the past 10 years have been, but
only if businesses are ready to take advantage of the twists
and turns the laws of the market bring to them.