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Competition, exports pressure shredders

Keywords: Tags  scrap, shredder, Rich Brady, Steel Dynamics, AMM's 6th Annual Steel Scrap Conference, Lisa Gordon

PHILADELPHIA — Metals recyclers with auto shredding operations are facing supply and financial pressures, and would be well served to shutter scrap assets that can’t turn a profit, Steel Dynamics Inc. vice president of ferrous resources and logistics Rich Brady said.

"Rationalize ineffective assets. I know that is difficult. The structural changes are typically the last one to be acknowledged," Brady said at AMM’s 6th Annual Steel Scrap Conference in Philadelphia.

Brady’s comments come at a time when headwinds in securing feedstock have increased due to the sheer rise in the number of shredders and growth in the export arena, he said.

Scrap exports have increased exponentially to nearly 24 million tonnes last year from 9 million tonnes prior to the 1990s, resulting in the erosion of a once plentiful and steady supply to domestic electric-arc furnace (EF) operators, he said.

"Export docks now represent a third of U.S. demand," Brady told conference attendees. An increase in containerized scrap activity is also adding pressure as smaller yards and shredders now have an additional place to market their material.

Auto bodies are another factor adding pressure to the challenging market, Brady said. With auto fleets staying on the road for a decade, shredders are being forced to turn to other feed sources like appliances, white goods and light structural grades.

"Scrap isn’t mined, it is traded. If you have a scrapyard, you don’t have scrap; you have a pipeline to obtain scrap," Brady said.

Securing enough feedstock in today’s environment requires shredders to expand their reach, he said. "This has promoted many shredders to cast a broader net," Brady said, noting that going outside a traditional market increases fuel costs, as well as rail and barge rates.

Some scrap companies are also chasing tons with their wallets, which can lead to overpaying the market.

"As I make observations about the marketplace, there is a heightened demand for the resource that didn’t exist before. Unfortunately, in some cases we have a situation where people are just going after tons. Volume isn’t everything and does not always get you to profitability," Brady said.

Given today’s challenges and related margin compression, the market should be "getting back to basics and bringing a new focus on operations," Brady advised attendees, noting that maximizing technology, including downstream nonferrous sorting systems, can help maintain profits.

"There is an old adage that scrap is bought and not sold. That long-standing tenet remains as important today as the first guy who realized this. If you don’t buy it right, you can’t process profit into the processing activity," he said.

Companies also need to recognize the importance of their intellectual capital, since retaining experienced talent is a key to success. Seasoned veterans in the industry can train the new generation and transfer the knowledge that made them successful, he added.

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