auto shredders continue to wrestle with falling profits due to
undisciplined buying practices, the willingness to pay top
dollar for subpar material and a struggling construction
sector, but the trend will eventually reverse itself, according
to attendees at AMMs Steel Scrap Conference in
"Shredders have a
price margin problem because of demand and falling prices over
the past 18 months," said Ben Abrams, president of Consolidated
Scrap Resources Inc., York, Pa. "It is more than just an issue
of too many shredders in the market. The bigger issue facing
shredders is the lack of construction demand and has probably
been the biggest obstacle for shredders and prices."
The lack of demand for
construction products has reduced the melt rates at mills
producing long products, which have a penchant for shredded
scrap. The net result has been shredders competing to sell
their material to a smaller market. "Less steel produced is
less demand and means lower prices," Abrams said.
One executive at a
chain of scrapyards with shredding operations is forecasting
shred consumption to improve in the Ohio Valley in 2014.
mills shred consumption fell to 90,000 tons per month
this year from 140,000 tons per month in 2012, according to
Peter Meyers, vice president of ferrous sales and marketing at
Cranford, N.J.-based Metalico Inc. "I see some very big
increases and expect well get consumption over 160,000
tons per month next year," he said.
During the peaks in
shred prices, there was no spread between prime scrap and
shredded scrap, and the two commodities were selling for the
Meyers said that mill
buyers reward recyclers that can provide clean material. "The
shred quality affects purchasing decisions. We have three mills
paying premium for low-copper shred. As technology expands on
the shredder side and melt shop side, you will see the trend
continue for mills to pay a better premium for shred," he
Mills are increasing
the percentage of shred melted in a charge and this trend will
continue, according to Donald Zulanch, senior vice president of
Middletown, Ohio-based Cohen Brothers Inc.
Abrams said shred will
be the prominent grade down the road. "The trend over the past
20 years is that the more shredded that is produced (the more
it) is consumed," he said. Other grades, such as heavy melting
scrap (HMS), are thrown into the shredder because shred sells
at a premium to HMS.
Adam Mervis, president
and chief executive officer of Mervis Industries Inc.,
Danville, Ill., said that more-disciplined buying practices are
needed by shredders, and buyers need to remember where the
money is made in a scrap deal. "Scrap dealers have a hard time
letting a competitor buy a ton they need to keep their shredder
running. But scrap companies make money when they buy scrap,
not when they sell scrap," he said.
A trend is emerging
where shredders are now paying for vehicles based on the
metallics left intact, Mervis added.
Abrams agreed that
shredders have been overpaying for materials, but said buying
practices ultimately will become more disciplined.