The dramatic fall in prices in this year's scrap market have overshadowed a bigger and ultimately more important trend- the ongoing consolidation with the metals industry.
The dramatic fall in prices in this years scrap market have overshadowed a bigger and ultimately more important trend the ongoing consolidation within the metals industry.
That trend is toward fewer independently owned steel mills, scrap dealers and scrap brokers. With each passing year, consolidations and mergers and acquisitions bring down the number of overall mills and scrap yards, as larger companies and investment groups gobble up the U.S. and even potentially the worldwide metals market.
These deals already have had a huge impact in a number of large scrap markets, including Birmingham, Buffalo, Chicago, Cleveland, Denver, Detroit, Memphis, Mississippi, Newark, Phoenix, Pittsburgh, Albany and Nashville.
The theory is that consolidation allows mills to eliminate excess capacity and control output, while allowing scrap suppliers greater power in pricing.
And to some extent, the industry has seen this. But some independent, privately owned scrap dealers worry instead that further consolidation will mean less supply-and-demand driven pricing in an open marketplace.
And the trend has not yet finished playing out. In a report titled Metals DealsForging Ahead: 2015 Outlook and 2014 Review, PricewaterhouseCoopers reported that although last years metals sectors deals were down considerably, there may still be life left in this business approach.
Looking ahead, we see dealmaking in the sector being primarily driven by specific country, industry or company considerations rather than by the global cycle, the direction of which remains uncertain, the report said. The urge to make deals solely to achieve industry consolidation is gone. Developments in the price of oil will have a significant part to play. We anticipate that some companies may review their resource portfolios in the light of low commodity prices.
So what does all this mean for the scrap industry? Family-owned businesses and some dealers fret that free-market competition will wither and hold down prices in the long run.