Trade Resources Industry Trends Originally Started by George's Father 35 Years Ago as a Single Scrap Metal Facility

Originally Started by George's Father 35 Years Ago as a Single Scrap Metal Facility

George Adams is President of SA Recycling,located in Anaheim,California,and he has been in the family-owned scrap metal business(Adams Steel)since 1977.Originally started by George's father 35 years ago as a single scrap metal facility,SA Recycling now has over 40 locations in three states,processing 2 million tons of recycled metals annually.In April of 2008,Adams was elected Chairman of the Institute of Scrap Recycling Industries,Inc.(ISRI),and he is also active in local politics in addition to business,social and charitable programs.

The US scrap market began 2011 in a relatively strong position,with average prices nearing pre-crisis(early 2008)levels.How much of this uptrend is based on the supply situation?

GA:The current export market hit$500/long ton in January.At its peak in 2008,it passed the$700 mark.When it fell below$200 at the end of 2008,this was purely because of the panic in the world collapse of the market.This was certainly not the true value of the market and it didn't take long for it to recover to the$300 level.The market is always influenced by the demand of the steel mills and their customers on one hand and the supply of scrap on the other.Normally you see the scrap market go up because of strong demand from the mills.You can also see the market move up without increased demand if there is a shortage of scrap.I believe this market rose initially because there was a shortage of scrap.Since then,demand has increased also.I feel a lot of this demand has come from steel service centers'fears that prices were going to go up and so they have increased their inventories to beat these price increases.

Did you notice a significant drop in obsolete scrapping during the economic crisis,as consumers held onto old appliances instead of purchasing new ones?

GA:There is no question that the buying habits of consumers changed in 2008.In the few years before the collapse,if an appliance or car broke down,it was usually just scrapped and replaced with a new one.People didn't take the time or trouble to get it repaired.Since then,people are much more money conscious.As much as possible,everything is repaired and the purchases of replacements are put off as long as possible.When people aren't scrapping their old cars or old appliances,they are certainly not going out and buying new ones.Therefore the old ones aren't coming into the yards.This definitely reduces the scrap available for purchase.Also the manufacturing shops aren't making the parts for new products,so your industrial scrap diminishes.In many cases,the small shops didn't survive and permanently went out of business.

Ferrous scrap is a fundamental element of the steel industry,and steel product prices have been beholden to the rollercoaster trends of scrap pricing.In your opinion,who is responsible for leveling out the volatility to comfortable levels:scrap producers,who determine scrap prices,or steel mills,who translate raw material costs into steel prices?

GA:I don't believe that scrap sets the market;that would be the case of the tail wagging the dog.All non-government controlled markets are always going to be influenced by supply and demand.That is the very basis of a free market.I feel the scrap market has always been elastic.Higher prices will always produce more scrap.Scrap might not travel 200 miles in a$250 market but it certainly will in a$500 market.The minute steel mills get enough scrap,they cut the price.The minute scrap dealers start getting a lot of inquiries for their scrap,they hold back.It is the dance that takes place every month.It always amazes me how much the price can change in a manner of a few hours.

Some in the steel industry have suggested quarterly scrap pricing,instead of monthly,as another way to stabilize the domestic scrap market.What are your thoughts on the possibility of such a move?

GA:That would be impossible.We live in a world market.This market is heavily influenced by events that happen in other countries.The current crisis in Egypt is a perfect example.If you fixed the price quarterly based on what you thought the normal demand would be in Turkey,you would probably have come up with a higher price than what it would actually be in the world market today.Scrap would then flood into that market causing it to collapse.Prices have a difficult time lasting a month,let alone a quarter.

What are your thoughts on the growing trend of mills vertically integrating upward,taking control of their raw material supply?

GA:I believe this trend will continue.How it works long term remains to be seen.There are very different cultures between steel mills and scrap metal operations.If the scrap metal yards are allowed to operate as scrap operations,then this type of integration can be successful.Commercial Metals is a good example.They started out in the scrap metal business.I think they have maintained their scrap metal roots and have continued to do a good job running their scrap operations.If scrap operations are run like a steel mill,then I think it will be very difficult for them to be competitive in the long term.

How about scrap producers horizontally integrating,acquiring smaller scrap companies and narrowing the competitive landscape?

GA:There are two main ways for a company to grow into another area or region It either buys an existing yard or green-fields one.That decision is usually greatly influenced by the price,size of the existing business,and the availability of permits.With the higher prices in non-ferrous and ferrous metals,many new scrap yards have opened up.Yards that historically handled non-ferrous,now handle ferrous and vice-versa.Higher prices give the opportunity to have higher margins.There are always economies of scale that can take place in bigger companies.At the same time,I believe very strongly that a dedicated owner/entrepreneur is really tough to beat.There will always be a market and opportunity for these small to medium scrap yards.

The US scrap export market greatly influences domestic scrap prices,which in turn trickles down to domestic steel prices.As the global economy expands,do you think this trend will continue,or do you think domestic mills will put pressure on scrap producers to insulate their prices from the volatile global market?

GA:This cuts both ways.Strong US domestic demand can also cause the export market to raise its prices to compete.This question really goes hand-in-hand with the preceding question.I don't see any way that domestic mills can be insulated.Domestic shippers will always compete with the export shippers.Many companies ship both export and domestic based on the market.Scrap will always flow to the highest market.Even if a mill was able to negotiate an arrangement with some local shippers,that would cause its local prices to be out of step with the actual market.This would then cause scrap to move in or out to the best price.

How have the government-imposed mill closures in China affected scrap exports from the US?

GA:This has not affected us.The larger mills that actually import scrap have not been closed.We have not lost any customers.I believe the mills that were closed were old,integrated mills.What little scrap they handled,they bought locally.I certainly agree that for China to have a healthy steel industry there needs to be consolidation.

Has there been any measurable increase in container shipping during the last year?

GA:Containers are here to stay-anybody who thinks differently is kidding themselves.Certain countries like Taiwan will always prefer containers over bulk because most of their steel mills are not right on the water.Even if their material comes in by bulk,it still has to be unloaded into trucks and delivered to the mill.Mills that are located right on the water will always prefer to take scrap by bulk.This will only change if there is a large increase in bulk rates,like what happened in 2007 and 2008.When bulk rates started approaching$100 per ton,and container rates were at$15 per ton;all mills needed to receive scrap in containers to be competitive.This caused a huge disaster at most container terminals as the major mills did not have the equipment or people to handle such a large influx of containers.There have been so many new bulk ships built or ordered,that I don't see this phenomenon occurring again in the near future.

What is your opinion on Mexican mill Deacero's recent acquisition of Baja Metal Shredder,which is located just south of the US border?How do you think this will affect your feeder supply?

GA:Deacero is a first class company.Their people are smart and they work hard.In my experience,they are definitely a tough competitor.I believe they tried to acquire that shredder two years ago,but when the owner refused,they just built a new shredder in Mexicali instead.Since they own both those shredders now,they won't need to compete against each other,and I think(hope)that this will stabilize the market.That shredder was already competing in this market and I don't see that changing.

Source: http://www.steelorbis.com/steel-news/interviews/beyond-the-scrap-yard-608138.htm
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