CHICAGO The scrap metal industry has changed dramatically and players need to realize that todays conditions are here to stay, a 50-year industry veteran sized up the competitive landscape for recyclers.
"It is a completely different industry today than it was as little as 10 years ago," Jack Stutz, chief operating officer of Orange, Calif.-based SA Recycling LLC, told an audience gathered at AMMs Steel Scrap Conference in Chicago. "We have been slow to accept the new intake as the new norm." he added.
The U.S. metal recycling outlook has gone from fair to poor since 2008 due to increased competition and lower steel production rates, Stutz said. The five years that preceded the 2008 recession enjoyed higher utilization rates and increased steel production, he pointed out, noting, however, that the low cost of entry counted as one factor darkening the industrys prospects.
"The cost of entry into the industry is minimal, which means it doesnt take much to open up a one- to two-acre scrapyard down the street from another yard," Stutz said. "In pre-2008, we saw an increase in new dealers and the expansion of existing dealers because it looked like a good business to get into." Excess shredding capacity is contributing to the higher scrap prices due to increased competition for feed he added, pointing out that the number of auto shredders climbed to 300 in 2013 from 230 in 2006.
Scrap companies have also been plagued by lossmaking or reduced profits, Stutz said, noting that recent results of publicly held companies with scrap assets underscore the difficult conditions they face.
Stutz advised conference attendees to avoid embracing the notion that steelmaking capacity now under construction will improve market conditions. "It is my opinion that new capacity will displace old, outdated capacity. So if there is no additional steel demand, there will be no additional scrap demand."
Turning to exports, he noted that they have been relatively stable during the past few years, hovering in the 21-million to 24-million-tonne-per-year range.
Stutz expects the growth of the export market to continue to exert upward pressure on domestic scrap prices. "Scrap that was once landlocked can now be put in containers and shipped offshore. As a result, prices paid by inland mills have been influenced upwards."