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                                    Current Issue

                                    Scrap Report

                                    A Priceless Commodity

                                    By on
                                    MCN Editor Beth Gainer The scrap metal industry is unpredictable, but with innovation and persistence, businesses can persevere.  

                                    Like many commodities, scrap metal is subject to the slings and arrows of outrageous fortune. And scrap metal professionals find this fortune subject to countless factors 每 including market demand, pricing, and international politics.

                                    ※Steel manufacturers are heavily dependent on scrap for raw material input,§ says Joe Pickard, chief economist at the Washington, D.C.-based Institute of Scrap Recycling Industries. ※About two-thirds of all the steel that is produced in the U.S. today comes from scrap. So, that*s an extremely important raw material input for steel producers.§

                                    Scrap metal is vital to the economy, but its pricing is volatile, thanks to a plethora of variables. ※Scrap is traded in a 30-day cycle, so that lends itself to volatility; it*s kind of like the stock market on a daily basis,§ says Greg Dixon, CEO of Smart Recycling Management, Nicholasville, Ky. ※What is happening that month will impact the pricing structure. Demand is the No. 1 factor.§ He adds that weather and transportation availability can also affect pricing.

                                    Frank Cozzi, CEO of Cozzi Recycling, a full-service scrap metal recycling yard and warehouse in Bellwood, Ill, and Melrose Park, Ill, agrees that scrap metal pricing is unpredictable. ※This is a supply and demand business, and it*s price sensitive,§ he says. ※The industry is affected by the coronavirus, just like any other industry that depends on foreign trade,§ he says. ※Probably 40 percent of scrap that*s generated in the United States has been going overseas in export.§

                                    However, most of the ferrous scrap Cozzi Recycling produces goes to domestic mills. ※Half of our business is industrial-related. As long as manufacturing is strong in our country, that*s a solid part of our business,§ says Cozzi. ※The other half of our business is from the obsolete scrap we buy from demolition contractors, building contractors, electricians and plumbers. That is a more price-sensitive business because people are not forced to sell it every day like the industrial business.§

                                    Scrap metal pricing is, indeed, difficult to predict. ※On the ferrous scrap side, we saw a pretty wide variation in pricing last year,§ says Pickard. ※Shredded is one of the benchmark grades that people look at. Another one is No. 1 heavy melt, which is an obsolete scrap grade that hasn*t been shredded. The pricing for that, according to the American Metal Market, was over $300 per ton at the beginning of last year, and by October 2019, it had dropped to around $180 per ton.§

                                    ※Our customers are in the business of buying and selling scrap, so if they have to sell their scrap at the end of the month for less than what they purchased for it at the beginning of the month, that*s not a long-term recipe for success,§ adds Pickard.

                                    The pricing for nonferrous metal scrap varies, as well. ※The pricing tends to be done based as a discount to the metal center trading at the exchanges. For example, copper generally trades at COMEX in New York, and a whole range of base metals 每 copper, aluminum, lead, zinc, nickel, tin 每 are also traded at the London Metal Exchange, and those prices can be extremely volatile,§ says Pickard. ※Like the coronavirus, when you see the stock exchanges fluctuating wildly as we*ve seen in the last few weeks, that impacts the commodity prices as well. Any time you*re in the commodities business there*s going to be volatility in the pricing. That*s the nature of the beast.§

                                    ※As manufacturing in the U.S. ebbs and flows,§ he continues, ※that has an impact on scrap demand, as well as scrap futures, because if you think about automakers who are stamping out new car doors, as they stamp out those car doors, they*re generating scrap metal as well. They are both consumers and generators of scrap metal.§ He adds that the flow of manufacturing greatly impacts the scrap metal industry. ※Scrap metals recycling is a commodity-based business, so commodity markets are subject to a lot of fluctuations as are other markets, as we*ve seen recently. And that makes for more challenging market conditions as volatility increases.§

                                    Despite the volatility of scrap metal prices, the U.S. has a stable supply of scrap metal. ※There*s not a lot of scrap that*s imported; there*s plenty of supply here in the U.S. Usually, if something is imported into the United States, it*s done for a specific reason 每 to try to shore up supply in a certain market that, for some reason, may have a shortage,§ says Dixon. He emphasizes that the U.S. exports far more scrap metal than the country imports. ※Importing scrap, for example, would take place if pricing has been robust; sometimes they*ll import scrap to help dampen the need for domestic scrap, which would dampen prices.§

                                    An Innovative Approach
                                    To help service centers and manufacturers get the best pricing for their scrap metal, Fortis Metal Management in Dallas has developed a new online procurement tool. Available in the marketplace for only a few months, TruMarket is poised to be a game changer for those looking to sell and purchase scrap metal, the company claims.

                                    ※There*s been a downturn in commodity prices since about mid-last year, and I think a lot of that has to do with how much competition is in the marketplace,§ says Fortis* president Jason Wolff. ※The tariffs had something to do with that; when you take those channels away, it makes it so domestic mills can do what they want or charge what they want and pay what they want. A scrap-producing manufacturer or service center might go out and get a couple of quotes and come back and present their numbers.§

                                    ※Our focus is to go out and do that on behalf of the service company or manufacturer,§ he continues. ※We want to create a competitive landscape using our knowledge of the industry and our leverage in the marketplace to get the highest price for the manufacturer for that metal. My job is to go out and get the most money possible for those commodities.§

                                    ※With TruMarket we set up an online event, as opposed to them just turning in their numbers and us trying to look at them and pick the highest price.  We let the market speak in an open and transparent way, where these scrap companies can come in and bid on those contracts,§ says Wolff. ※And they know instantaneously if they*ve been outbid on that contract. So it really is the best possible way to ensure that our clients are getting the very best price in the marketplace. How we know this, is that we*ve awarded business to companies in the past in the traditional way, and they call us and say, &Did we get the bid on this,* and we say, &No, scrap company ABC got it.* And they say, &Jason, we could*ve paid more.*

                                    ※I don*t want anybody to come back and say, &We could*ve paid more.*§
                                    ※TruMarket has been very effective really squeezing out that last dollar, that last penny to the point where the manufacturer or the scrap producer benefits from this technology,§ says Wolff. He states that Fortis recently held a TruMarket event, and one of his clients received approximately 100 percent more than he would have garnered through traditional phone calls.
                                    Indeed, innovation can help buoy the way scrap metal professionals do business. But a positive mindset also goes far in helping them cope with scrap metal pricing volatility.

                                    Renewing, Recycling
                                    Despite the challenges of the scrap metal industry, businesses will rebound, according to Trisha Yurian, outside sales representative for Billings, Mont.-based Big Sky Steel. The company is a family-owned and operated business that sells scrap metal, new steel products and industrial hardware. ※Right now we*ve hit a dip in our market, but I still think there*s going to be a lot of opportunity and a lot of hope for that to grow and develop,§ she says. ※Some people you talk to about prices and most are feeling a little discouraged, and they*re referencing &Hey, we*ve seen better days in this market; 10 years ago, we were getting way more money.*§   

                                    Yurian*s renewed optimism is one forged from adversity. ※I do believe that as an industry we are going to be built back up,§ she says. ※I think our market is going to have a shift and we*re going to see an uptick and a turnaround. I don*t want people to lose the optimism in that market.§

                                    ※What we*ve had to do as a company, when we hit downturns like this in the economy, is to focus on what we are really good at or where we can improve. When [business] is great, you*re not really focused on improving things,§ she adds. ※That*s going to make us a better, stronger company, and we*re going to ultimately 每 when that market does pick up 每 be prepared.§

                                    Along with renewable faith in the market*s ability to repair itself, many industry professionals embrace the renewable nature of scrap metal. ※While the scrap recycling industry has been in the period of transition, the outlook for the industry is actually quite positive,§ says Pickard. ※I think part of the reason for that is there*s really been an increased amount of attention on sustainable development and the health of the environment among the general population, and I think it*s important to remember that recycling is part of the solution for our environmental problems.§

                                    ※What*s great about recycling is we*re able to take that product and see a return on that again§ Yurian says. ※It*s a win-win, honestly, for everybody. We*re also doing something beneficial for the earth.§

                                    ※When we talk about scrap, we*re talking about recyclable material,§ says Bret Biggers, economist at ISRI. ※We call it the recycling market, or the residential market, or commercial material. We are including all of it and calling it scrap. It*s recovered material.§

                                    ※Scrap is a raw material to a manufacturer,§ he continues. ※So when [those in the industry] buy iron, they can buy it from an existing product, such as a car, they can melt it down, and its molecular structure is still the same.§ Pickard agrees. ※Metal can be recycled indefinitely. It loses little of its properties over time. The majority of metal that has been produced over the last century is still in use today,§ he says. ※The car you drive today most likely has metal in it that was produced over 100 years ago.§ ?

                                    [Side Bar]
                                    The Global Effect
                                    Scrap metal is an international commodity.  According to the U.S. Census Bureau and the U.S. International Trade Commission, the U.S. exports the most ferrous scrap to Turkey.  ※Turkey doesn*t generate a lot of internal scrap, so Turkey has been the largest importer of U.S. scrap for some time,§ says Greg Dixon, CEO of Smart Recycling Management, Nicholasville Ky.
                                         So agrees Joe Pickard, chief economist at the Institute of Scrap Recycling Industries, Washington, D.C. ※In the ferrous scrap realm, the biggest overseas customer has been Turkey. That*s because Turkey is totally dependent on scrap imports because the steel they produce comes from electric arc furnaces, which run almost entirely off of scrap metal. Turkey is not generating enough scrap metal domestically, so they need to import, so they are the biggest customer for scrap metal in the world,§ says Pickard. ※Unlike the domestic buyers that are making their purchases during the first week of the month, Turkey is coming in and out of the market throughout the month and throughout the year, so that impacts market pricing as well.§
                                    ※We*ve seen a growth market in other areas of the world 每 particularly in Asia such as Malaysia, Bangladesh, Vietnam and Saudi Arabia,§ Pickard continues, adding that the U.S. may be doing business with Latin America someday.
                                    ※As world trade flows and changes, that has an impact on our business as well,§ says Pickard. The scrap metal industry ※is also a global industry, so any time that we see barriers to trade being introduced, that also makes for more challenging conditions for scrap recyclers because it really is a global business,§ he says, pointing out China*s import restrictions.  ※There have also been movements to raise tariff levels of scrap metal imports in particular,§ he says. ※India has been talking about raising their import tariffs on scrap metal as well.§
                                    In fact, when it comes to scrap metal, people cannot ignore China. ※Prior to the tariffs, China had put in environmental restrictions that they never had before, and it precluded a lot of the exports that the U.S. was making to China even before the tariffs,§ says Frank Cozzi, CEO of Cozzi Recycling in Bellwood, Ill, and Melrose Park, Ill.  ※The tariffs certainly have not helped.§ 
                                    Foremost on many industry professionals* minds is this: whether China will become a scrap exporter.
                                    ※China hasn*t been, but there are rumors that at some point in time they will, but I personally doubt that,§ says Dixon. ※I think they want to keep control of their scrap and keep their furnaces running at full speed. But at some point in time they could be an exporter.§
                                         Pickard also believes that China might one day export scrap metal. ※As China*s infrastructure ages, they*re going to be generating a lot more scrap by virtue of the size of their economy. I think China continues to be a source of global demand for all commodities,§ he says. ※And China is securing access to the raw material that they need in order to grow their economy. Whether it*s mines in South Africa, or access to crude oil or access to scrap, they need the commodities. So, the emphasis in China has been to secure those materials in place, and to become an exporter of them, and I think that*s true of scrap metal too, where they have export duties in place on ferrous scrap which make it expensive to export that material.§
                                         China is not a major export competitor, but if it exports scrap metal, the country would most likely export to Asia from a transportation and logistics point of view.
                                    Overall, while scrap metal is mostly used domestically, the export market is still crucial to business. ※Out of everything we process, typically about 70 percent of that material goes to domestic manufacturers like foundries and other industrial customers that are going to take that scrap metal and melt it to produce new products,§ says Pickard. ※About 30 percent overall go to the export market. By far, domestic manufacturing is our biggest customer, but the export customers are important for us too.§

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