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Auto scrap market has challenges, varied results

Keywords: Tags  automotive scrap, scrap supply, scrap lifecycle, John Ambrosia

When it comes to automotive scrap supply and demand, the only thing certain is the borrowing of a time-tested auto industry phrase: Your mileage may vary.

There are two sides that contribute to the boom-or-bust cycles of automotive scrap availability and pricing: the buyers of the scrap used to make steel, aluminum, copper and other products; and the generators and sellers of the scrap collected from vehicles taken out of circulation.

The economics of the recycling business determine the way end-of-life vehicles are processed in the United States, as one industry insider said. Just as automakers are working on cost-effective solutions that will improve the recycling rates for junked cars and trucks, dismantlers are removing those components for which commodity prices make separate processing economical. Similarly, shredding companies choose their technologies to maximize recycling, which also has a positive effect on their revenue.

The scrap pulled from recycled vehicles includes, but isn’t limited to, aluminum wheels, aluminum cast, irony aluminum, dirty motor blocks plus cast iron, heavy melting steel, rotors, starters, alternators, alternating current (AC) compressors, carburetors and throttle bodies, power steering pumps, aluminum and cast iron water pumps, copper harness wire, copper radiators, aluminum radiators, aluminum and cast iron brake master cylinders, whole transmissions (automatic and standard) and complete motors (aluminum blocks with transmissions as well as cast blocks with transmissions).

But due to the nature of auto composition, the engine that drives recycling in the automotive market is steel. Steel accounts for 60 to 65 percent of the average North American vehicle’s content today, up from about 55 percent 15 years ago, according to American Iron and Steel Institute statistics.

“If there weren’t a market to retrieve steel, the other metals couldn’t be recovered economically,” one industry official said.

The other major component in vehicles is aluminum. Approximately 95 percent of all aluminum in a scrapped vehicle is recycled, and about 60 percent of the aluminum that goes into making a new car is secondary material; melting secondary aluminum uses only 5 percent of the energy needed to produce new aluminum.

The copper content in North American vehicles ranges from 55 to 68 pounds per vehicle, according to a market study by the Copper Development Association, New York. Forecasting that hybrid electric/gasoline-powered vehicles will make up 4 to 6 percent of all vehicles on North American roads within two years, the study estimated that hybrids “will use almost twice as much copper as traditional 14-volt (battery) vehicles.”

In response to the increased use of aluminum, steel and steel scrap have continued to evolve. Advanced high-strength steels, which are the fastest-growing materials in automotive design, enable automakers to deliver vehicles that are lighter and more fuel-efficient and affordable while still protecting passengers, according to steel industry advocacy group Autosteel.

As automakers continue to put more emphasis on weight reduction and continue work on strengthening methods, analysts of the auto, steel and scrap industries are in agreement that lighter, but highly engineered, vehicles are the future—and that lightweight high-strength steels are positioned to take an even greater share of vehicle content, although the aluminum industry continues to make its case and fight for greater market share.

Metal manufacturers and converters have become more focused on sustainability, primarily for sound economic reasons—the more metal recovered, the less raw material has to be mined and melted—but also for the sake of environmental stewardship. The federal Environmental Protection Agency is increasingly interested in the carbon footprint that automotive steel and scrap create.

In the marketplace, more people are paying attention to the sustainability of vehicle content. As a result, lightweighting vehicles to improve fuel economy remains the driving force in the design and application of metals and other materials in the automotive industry. But the environmental burden imposed through the entire lifecycle of materials—from manufacturing to use and recovery—is a growing concern for industry as governments across the globe impose stricter regulations to better control and reduce greenhouse gas emissions.

The lightweighting trend itself has gained momentum in recent years, especially as small vehicles are desired in many regions of the world where fast-growing emerging economies are creating a middle class that wants to own vehicles, and materials must now be fashioned to handle new fuel sources, such as plug-in batteries.

The steel, aluminum and copper industries all say that the content of each of these metals entering service in a brand-new vehicle typically has already been recycled as scrap, thus creating very little emissions in the manufacturing process; is made to last the life of the vehicle without needing replacement; and is virtually 100-percent recyclable when the vehicle itself eventually is scrapped.

Apart from the needs created by a battery-operated vehicle, the increasing amount of standard electronics—from global positioning satellite devices and video screens to iPhone docking stations—all require more copper wiring.

On the dealer and broker side of the automotive scrap equation, shredders have become another symbol of the split personality of market demands and supply. Too many shredders crowding the domestic landscape are beginning to drive profit margins down and are motivating recyclers to become vertically integrated and self-sufficient in what once was a highly lucrative business.

Sensing the opportunity to feed the demand for scrap metal and watching competitors get rich in the process has led to an explosion of shredders throughout the United States. As a result, the days of feeding metal into a shredder and watching it practically spit out money are over as an increasing number of players eat into the profit margins of processors.

Yet shredders are still being bought and installed, and in certain markets that growth still makes sense. There could be more than 300 shredders in North America by the end of 2011, capable of chewing through 12.2 million tons per year, compared with 120 shredders in 1974, according to the Institute for Scrap Recycling Industries. But the list is by no means exhaustive. More shredders are being constructed in California, Florida, Indiana, New Jersey, New York, Oklahoma, Texas and Canada.

The market was saturated a decade ago and is now becoming too congested, a Midwest shredder operator said. “We installed ours in the early 2000s as we felt it was a growth potential for our company. We had the cash to make the investment, the ability to buy and sell scrap, property with rail and barge capabilities and office staffing,” he said. 

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