Scrap processors have been singing the same refrain as we head into 2014, and it goes something like this: “Generation is down and competition for available material is eroding profit margins.” (While it’s not the best example of songwriting, it still is a very catchy tune, apparently.)
Of course, this is not a new phenomenon. Recyclers have been complaining about this tightness in the market for the last year at least. And in commodity businesses like metals recycling, margins are always a concern as some buyers make price the primary factor in their purchasing decisions if the material is of an acceptable quality.
Recycling Today’s editors regularly talk with scrap dealers to prepare the commodity departments that are featured in each issue of the magazine. In December 2013, a scrap metal dealer who specializes in aluminum scrap told our editors that he felt 2014 would be a carbon copy of the last two years, with decent demand but with very tight margins and minimal generation.
Healthy demand for aluminum scrap may seem somewhat surprising given the overcapacity that appears to exist among aluminum producers. However, many aluminum producers have been vocal about their efforts to increase their use of recycled material. (See “Imports impact” beginning on page S26, in which Novelis and Alcoa talk about their consumption of scrap in the production of aluminum cans.)
For the first six months of 2013, the volume of red metal scrap moving from the U.S. to China slowed by 9 percent compared with 2012 based on figures collected by U.S. government agencies. However, according to statistics reported by the Chinese government and comments from scrap recyclers and consumers, even if metals production is nearing a plateau in that country, China’s copper, brass and aluminum producers will continue to import container loads of scrap as feedstock.
In fact, as of early December, copper scrap was enjoying healthy demand. One U.S. scrap dealer said his company was getting calls from consumers who were looking to shore up scrap supplies for 2014, many of whom were having a difficult time getting enough material to fill their orders.
Brussels-based World Steel Association (WorldSteel) is forecasting a 3.1 percent increase in global steel use for 2013, which means steel production will reach 1.475 billion metric tons in 2013. In 2014, WorldSteel forecasts that world steel demand will grow by an additional 3.3 percent, reaching 1.523 billion metric tons. This growth in production likely will result in more demand for ferrous scrap.
While healthy demand cannot be characterized as a bad thing for scrap processors, it can have negative effects on operations. And, if the recent past is any indication, scrap processors will continue to find competition for material fierce and profit margins slimmer in the year ahead.
Figures for the volume of secondary copper and brass produced in China show the rate of annual growth has slowed considerably compared with the boom years from 2004 to 2010.
However, China’s mills and refineries are churning out some 2.75 million tons of secondary copper made from scrap each year. Until the nation begins demolishing buildings constructed in the past decade and sending larger numbers of vehicles to shredding plants, it will continue to import copper and brass scrap from North America, Europe and other parts of the world.
Statistics gathered within China and comments and observations by scrap recyclers and consumers indicate that even if metals production is nearing a plateau, China’s copper, brass and aluminum producers will continue to bring in container loads of scrap as a key feedstock.
Clearing the fence
In 2012, secondary copper and brass producers in China imported more than 1.8 million tons of red metal scrap from the United States and the European Union (EU), according to the figures collected by the Eurostat agency.
Those statistics were presented by Alexandre Delacoux, director general of the Brussels-based Bureau of International Recycling (BIR), at the 2013 annual convention of the CMRA (China Nonferrous Metals Industry Association Recycling Metal Branch). The conference and trade show was Nov. 6-9 at the Chongqing International Convention & Exhibition Center in Chongqing, China.
Considering that China produced some 2.75 million tons of secondary copper that same year, the extent to which the nation’s red metals producers continue to rely on imported scrap remains clear.
It is possible China will import less copper-bearing scrap from the U.S. and the EU in 2013, possibly in part because it is generating more scrap domestically but also because economic growth has been slower and because of the customs and inspection protocol known as Operation Green Fence.
Mapping a new course
Throughout China’s imported scrap boom of the past 15 years, the hotbeds of scrap buying, processing and melting have been concentrated in the nation’s major Pacific coast (east coast) cities and ports. However, a concentrated effort by China’s government and banks to rapidly industrialize and urbanize the nation’s interior is beginning to change that.
Speaking to delegates at the 2013 annual convention of the CMRA (China Nonferrous Metals Industry Association Recycling Metal Branch), Chen Demin, a professor at Chongqing University, provided an overview of the western region’s development as a growing manufacturing, scrap generating and scrap consuming center.
“Southwestern China will be a very important area for metals production and metal scrap, joining areas like the Pearl River Delta,” said Zhang Xizhong, deputy secretary general of the CMRA, when introducing Chen.
“The pace of growth is fast,” Chen said, with the nonferrous metals industry experiencing “active change” in cities like Chongqing as “industry rapidly moves east to west in China.”
Growth has been particularly fast since 2008, he added, with the Chongqing region now having 10 secondary nonferrous metals producers, each with output of 300,000 metric tons per year or more.
The university professor said European scrap exporters were exploring their improved access to the southwestern China market via the freight rail line that runs from Antwerp, Belgium, to Chongqing that has opened up in the past two years.
Some of the opportunities in western China are countered by challenges, noted Chen, including the presence of smelting production that is somewhat “backward” in terms of its pollution levels and energy consumption.
Despite some necessary upgrades, Chen said secondary smelter production “in the long run is environmentally friendly” compared with the mining and primary production processes.
As southwestern China’s secondary metals production grows, so too is its investment in resource parks designed to process and prepare nonferrous scrap. One such park is being “supported by the Chongqing municipal government” with a $490,000 investment, Chen noted.
Operators in this resource park are accepting scrap shipments from Europe via rail, Chen said, allowing them to grow significantly along with the region’s ability to produce secondary nonferrous metals.
The 2013 annual convention of the CMRA was Nov. 6-9 at the Chongqing International Convention & Exhibition Center in Chongqing, China.
Nonferrous metal traders conducting business in China spent much of 2013 coping with the effects of Green Fence, a multiagency effort by the Chinese government to more closely manage the import of containerized scrap imports.
Speakers at the CMRA’s 2013 annual conference noted that the new procedures caused expensive delays for importers and exporters, though in the long run the changes may be beneficial for recyclers who play by the rules.
Operation Green Fence indisputably “affected the customs clearance of importers,” stated Wang Jiwei, vice president and secretary general of the CMRA.
China’s increased scrutiny of imported scrap came at the same time as increased taxes and increased energy costs for nonferrous scrap recyclers and secondary metals producers, noted Wang, making 2013 a difficult year for these companies.
Delays caused by Operation Green Fence were frustrating for metals recyclers, according to Wang, because “there are basically no smuggling cases for scrap metal” and substandard shipments of mixed waste do not try to enter the country labeled as scrap metal.
“Copper and aluminum are not smuggled into China, however we were affected [by the port slowdowns], and our customs declaration process has been slowed down,” he stated.
Speaking at the 2013 China International Scrap Conference, hosted by the China Entry-Exit Inspection and Quarantine Association Reused and Recycling Branch (CIQAR) in Ningbo, China, in early November 2013, Robert Stein of Alter Trading Co., St. Louis, asked Chinese government officials to consider the consequences of unfair trade barriers and hurdles.
Stein, who also is the chair of the BIR’s Nonferrous Division, said, “China has every sovereign right to impose rules designed to ensure that it receives the high-quality recyclables it desires (and is paying for) rather than hazardous or off-spec material.”
However, if those rules become too burdensome to recyclers around the world, they will seek out other options, Stein said. “Scrap metal, like any other commodity, eventually finds its way to the most efficient market of value, which, simply put, means that we regularly compare costs of getting our product to various markets as part of the decision as to where it will ultimately be shipped. All impediments that stand in the way of easy material flow cost us money and are obviously a part of the calculation. In today’s world of increasing costs, the compliance issues that we face in our shipments to China all too often dictate that our scrap metal either stays in the domestic market or is exported to countries other than China.”
At the CMRA event, the BIR’s Delacoux acknowledged that Green Fence caused difficulties, but he also played up the positive aspects of the initiative. “I think Green Fence shows that China can apply [these standards] because you can pursue quality,” he commented. “I’m very glad about that.”
Stamp of approval
While Operation Green Fence and other factors may result in a decreased flow of red metal scrap from the United States to China in 2013, at least one metals producer is vowing to increase its future purchases.
In a presentation at the 2013 CMRA convention, Jin Xiaoguang, deputy general manager of China Minmetals Non-ferrous Metals Co. Ltd., Beijing, said the company plans to ramp up its consumption of copper scrap to 200,000 metric tons per year by 2015.
Jin said it was part of the company’s wider effort to develop its recycling capabilities. “To access new materials, we have shifted our attention to recyclable metal,” he commented. “Every year we are increasing our purchases of copper scrap by 100 percent,” he added, noting that Minmetals now has purchasing offices in Macao, China, and Los Angeles.
The nonferrous metals production company executive said the growing secondary nonferrous metals industry in China “has made brilliant achievements, with significant progress.”
Jin said Beijing-based Minmetals, which has 17,700 employees and annual revenue of 325 billion yuan ($53.3 billion), is taking steps to meet Chinese government policy goals tied to the “circular economy” and other resource conservation and preservation measures.
He also called on governments around the world to regulate scrap materials accordingly. “Scrap should not be regarded as garbage but as resources,” Jin commented.
Within China, Jin urged greater investments in processing and smelting technology and in “standardization of how companies do business.” Chinese firms, he commented, “need to compete globally with international competitors.”
Regarding long-term demand for metals in the nation, Jin said “urbanization is accelerating.”
Another speaker at the CMRA conference portrayed the wider geographic footprint that is being established within China for secondary metals production. (See the sidebar “Mapping a new course” on page S40.)
At the CIQAR event in Ningbo, Stein offered a longer-term view of China’s nonferrous scrap import situation, referring to a report the BIR has produced in cooperation with London-based metals industry analyst CRU.
“As our report points out, one of the main reasons for this strong flow of copper scrap toward China is that refining costs have decreased there over the decade when compared to other parts of the world,” Stein said. “This has allowed Chinese scrap consumers to pay full London Metal Exchange (LME), or in some cases more than the LME price of copper cathode, for copper contained in scrap. Consequently, European and North American consumers have found it difficult to compete.”
The low costs of secondary nonferrous metals production in China, thus, means “CRU believes aluminum and copper demand growth will abate [in China] without necessarily meaning lower demand for scrap,” Stein said.
Green in the long run
In remarks prepared for the 2013 annual convention of the CMRA (China Nonferrous Metals Industry Association Recycling Metal Branch), held Nov. 6-9 in Chongqing, China, Jin Xiaoguang, deputy general manager of China Minmetals Non-ferrous Metals Co. Ltd., Beijing, said the 12th Five-Year Plan of China’s central government and other subsequent policy statements look favorably on “the development of the circular economy” and paying “more attention to sustainable development.”
Using scrap instead of mined copper ore has demonstrable positive effects on the environment, according to Jin, including:
Thus, while Operation Green Fence may have made life difficult for recyclers in 2013, as pollution problems in China gain greater attention, secondary copper producers can point to positive environmental attributes that work in their favor.
“Competition for this scrap will continue to grow, as probably will the trend toward aluminum and copper scrap flowing from the developed world to the developing and rapidly growing nations,” Stein continued. “While more scrap will be generated going forward through the aging of infrastructure and consumer goods, the primary supply of aluminum and copper will become more costly. As a result, scrap is expected to become more desirable.”
Eventually, however, the slowdown of China’s urbanization and its generation of obsolete consumer goods is expected to create an important tipping point. Stein added, “Perhaps the most eye-catching observation made in the report is that, and I quote, ‘Going forward, we expect that China will become a major exporter of nonferrous scrap,’ though the report’s authors go on to acknowledge that ‘the specific point in time that this is likely to occur is very uncertain.’”
Stein continued, “Because copper is used mostly in construction, it is likely that scrap generation will increase rapidly just as the infrastructure building phase of China’s growth winds down. Aluminum looks more secure in the long term as its end uses are much more diverse. Thus, CRU is predicting copper will reach a tipping point more momentous than that of aluminum, with the latter expected to see a much more gradual transition in terms of scrap flows.”
That looming tipping point notwithstanding, few analysts see 2014 as the year when Chinese nonferrous metals producers will greatly curtail scrap imports.
Among the causes of concern, however, are semiregular statements from the Chinese government regarding overcapacity within basic materials sectors.
The steel and cement industries are most commonly singled out, though the “electrolytic aluminum” sector has recently joined the list of offenders. The electrolytic process is typically associated with smelting ores rather than scrap, but any effort to cut capacity could cast a wider net.
The 71.9 percent capacity rate in this sector has caused the central government to issue guidelines to its own agencies, local governments and the aluminum industry to take action in a number of ways, including “prohibiting blind capacity expansion, clearing up illegal capacities, eliminating backward capacities [and] expanding export markets.”
In 2012, China imported nearly 1.4 million tons of aluminum scrap from the U.S., so an interruption in this trade would have a noticeable impact on the market.
Copper production is not as commonly identified as being in an overcapacity situation, and at least one duo of analysts says China’s government policy emphasis on urbanization and bolstering household purchases by its middle class will keep copper products in demand.
A late 2013 report from analysts Su Aik Lim and Laura Zhai of Fitch Ratings, Beijing and Singapore, states, “Copper is probably the only [metals] bright spot in the long term, with China’s increasing focus on energy-efficient products, which require higher copper usage per unit. Per capita consumption for the metal [in China] is still very low at over 5.5 kilograms (12.1 pounds) compared with developed nations’ peak consumption of well over 11 kilograms (24.25 pounds).”
The duo also notes that China’s copper ore reserves are limited, meaning red metals recyclers in the U.S. and other scrap surplus nations may well be filling up numerous containers bound for China again in 2014.
The author is editor of Recycling Today and can be contacted at email@example.com.
Amsterdam-based Constellium is a global company with nearly 8,800 employees involved in many industry sectors, including aerospace, automotive and packaging.
The common thread weaving the company’s divisions together is made of aluminum, which Constellium produces in a variety of what it calls “aluminum solutions” using several different metallurgical processes.
As a producer of more than 1 million metric tons of aluminum annually at production sites around the world, Constellium pays close attention to how it sources raw materials and how products containing its metals are produced and then recycled when they become obsolete.
In the aerospace sector, where metallurgical chemistry is critical, Constellium has developed a closed-loop recycling process that it says benefits the environment while also offering the company a competitive edge.
Constellium is a new name on the aluminum scene that was just introduced in 2011. However, the company’s product lines, facilities and many of its people trace back to three legacy companies with deep roots in aluminum: Alcan, AluSuisse and Pechiney.
In May 2011, the now-combined aluminum production activities of these three firms began operating under the Constellium name (excluding Alcan packaging, which had previously spun off as Novelis).
The company’s initial shareholders included mining firm Rio Tinto, the Apollo Global Management Fund and France’s Fonds Stratégique d’Investissement (FSI). Subsequently, Constellium issued public shares on the New York Stock Exchange in mid-2013.
Constellium’s three primary business units are:
- Automotive Structures and Industry, which produces crash-management systems and other structural and safety parts as well as extrusions and large profiles for the road and rail transportation, energy and other sectors;
- Packaging and Automotive Rolled Products, which develops, provides and recycles aluminum sheets and coils for packaging applications (beverage and food cans, closures, foils) as well as heat exchangers and some products for automotive body applications; and
- Aerospace and Transportation, which provides advanced aluminum and specialty materials products for the global aerospace, defense, transportation and industrial sectors. The business unit produces plate, sheet, extrusions and precision casting products for aerospace clients including Airbus, Boeing, Mitsubishi, Spirit, Embraer, Dassault, Bombardier, Kawasaki and others.
Among the initiatives within Constellium’s Paris-based Aerospace and Transportation division has been a closed-loop recycling process designed to recover its unique aerospace alloys.
The effort is being managed by Bruno Chenal, Constellium director for research and development. He has been with Constellium or its predecessor companies (first Pechiney, then Alcan) since 1987.
Three good reasons
The production of aircraft and aerospace components is a precision-intensive process that can involve considerable machining and metalworking.
“For some parts, only 10 percent of the aluminum products delivered by Constellium will actually fly or be part of the aircraft,” Chenal says. “That means as much as 90 percent of Constellium’s aluminum bought by our aerospace customers will be transformed into chips and offcuts during the manufacturing process.”
Constellium’s best interests are served by recovering this metal for several reasons, Chenal says.
By harvesting its own scrap, Constellium knows the chemistry will be right at the foundry or casting plant. “We know that we can make the most of the aluminum [scrap] and its ability to be 100 percent recycled without losing any of its properties,” he says.
This line of thinking has been critical with the recovery of Constellium’s Airware® aluminum-lithium material. Airware is designed for all parts of an aerostructure and was developed after considerable research involving nanoscale strengthening. (See the sidebar, “Rarefied Air,” available at www.RecyclingToday.com/rt0114-constellium-profile.aspx.)
Profit-and-loss thinking also figures heavily into making recycling a priority.
“From a recycling perspective, we had to develop a specific process dedicated to this family of advanced [materials],” says Chenal. “With Airware, we are using materials such as lithium and silver, which are very expensive. Finding a way to optimize the cost through recycling is part of the solution that we owe to our customers.”
As well, using a high percentage of internally sourced scrap provides a hedge “against the variations in the cost of aluminum on global metal markets,” he notes.
The recycling efforts also score well on sustainability scorecards. “The energy required to produce recycled aluminum is 20 times lower than that required for primary aluminum,” says Chenal, adding that “one [metric ton] of recycled aluminum saves four [metric tons] of bauxite.”
He continues, “The environmental impact of aircraft has become a key concern that we need to address at our level. The more calls for a greener aircraft, the better it is for our aluminum business, for sure. When one considers the major market drivers for the single-aisle civil aviation sector for the coming 20 years and beyond, it is clear that breakthrough solutions will be required to meet the stringent ACARE (Advisory Council for Aeronautics Research in Europe) targets for reduced fuel burn and reduced emissions.”
For Constellium that means a commitment to designing new technologies with specialized chemistries. “In that context, it is believed that airframe weight reductions and improved aerodynamics could contribute to at least 20 percent of these fuel burn targets, and on weight reduction and aerodynamics aluminum solutions will have a say,” says Chenal.
As Constellium introduces new aluminum solutions, it likely will be just as eager to recover them for its foundries and cast shops as it is to recover Airware.
In the loop
As explained by Chenal, the aluminum aerospace alloys recycling loop consists of more than one circle and more than one timeline.
In the shorter timeline, Constellium’s aerospace products shipped to manufacturers are generally machined and used within three to six months, generating offcut rates of up to 90 percent.
Working directly with these customers or with scrap companies, the goal of the closed-loop system is to fully recover this material stream to recapture the unique chemistry that will make it ideal feedstock.
The other 10 percent of Constellium’s products are now part of an airplane or helicopter that will have a useful life of from 30 to 40 years on average.
Although this fraction is dispersed globally and will follow many different timelines to obsolescence, Constellium is not giving up on the idea of working with aircraft dismantlers around the world to identify Airware and work with dismantlers to purchase this scrap for its foundries.
Establishing and managing these two loops involves considerable work. “The real challenge is within the management of supply chain, which involves a complex group of players,” Chenal says. “Lead times from demand forecast submitted to aluminum solutions suppliers to the final assembly line at OEMs can take up to 2.5 years, which is quite a long period of time.”
Aircraft orders can be made (or cancelled or delayed) in spurts, with global exhibitions and economic cycles figuring into the timing.
As well, it has become increasingly common for aircraft makers or buyers to request design changes in the midst of the production process to fill a given order. “At Constellium, we are working on how to be more predictive and be ready for both the specifications we are aware of and the specifications that could be added along the way,” Chenal says.
The closed-loop efforts fit into what Chenal and other Constellium executives see as “a holistic approach to aircraft manufacturing.” Thus, Chenal says, “We do sell not only sheets but true solutions. We always bear in mind that we’re selling aluminum solutions for fast evolving needs. We think that further breakthrough improvement is within reach through the co-optimization of materials, design and fabrication. Our holistic approach is thus definitely the right one, and all the more so as it enables us to develop tailored products for our customers.”
Those tailored products with their unique metallurgical properties maintain their intrinsic value as chips and offcuts. “Our products are meant to address all requirements from the supply chain, from design and engineering to manufacturing, maintenance and recycling,” he says.
The author is editor of Recycling Today and can be contacted at firstname.lastname@example.org. This article first ran in the July/August 2013 issue of Recycling Today Global Edition.
If the ability to profit from one’s mistakes were a commodity, Andrew Gongola of Elkins Metal Recycling, Elkins, W.Va., might be able to corner the market. Still, learning is a key to succeeding, and what he has learned will help others improve their bottom lines.
“In 2010, half our scrap came from peddler business,” Gongola says. “We just didn’t have a lot of manufacturing-type businesses in central West Virginia.
“Today, 80 percent of our scrap comes from commercial generators, and most of that from the energy sector. Even the machine shops we service build components for coal miners, power plants and gas drillers,” he says.
The logistics behind receiving and processing materials from these two sources are strikingly different. As a result, Gongola instituted a program in 2012 called “97 Percent Right Place,” which governs material flow in the company’s yards.
“The basic idea is that the customer (or our own trucks) will unload in a place that is one handling away from the ‘right place’ for the material,” he says, explaining that, for example, shearing scrap is unloaded within 50 feet of the shear. That requires just one swing for the crane into the charging box.
Prepared scrap is unloaded within 50 feet of the rail siding—again, one swing into the rail car.
“While all yards try to achieve this, we made it our first goal,” he says. Sometimes customers have to wait to get to the right place, or Gongola finds he has to pour more concrete so that the right place isn’t in the mud, he says. In one particular case, the company’s operations manager made five employees move their vehicles across the street because the only remaining area within 50 feet of the rail siding was in the parking lot, and he had a load of prepared scrap to dump.
“Right Place” always comes first. “When we started the program, we thought that we would be forced to put one out of 30 loads in a place that wasn’t right, but our exception rate is more like one out of 100,” Gongola says.
Even that doesn’t cut the mustard. “When we get an exception, the managers discuss it. We take it seriously,” he adds.
Gongola’s operations also handle C&D work. Typically, the company only demolishes steel-intensive structures. These include tipples, pipeline compressors, big boilers and similar industrial scrap. “It is the most profitable thing we do, but it also bears the most risk,” Gongola says. “If we stay within our capabilities, then it is good business, regardless of the transaction price for ferrous scrap.”
The company is specific about the materials it handles, Gongola says. Prepared No. 1 HMS (heavy melting scrap) can be any metals smaller than 2 feet by 3 feet in size. It must be free of nonferrous attachments, such as lead, aluminum, brass or copper. The company does not accept sealed containers, such as car shocks, torque converters, belt rollers and tanks. However, any sealed container that has two holes burned into the item at least the size of a 50-cent coin are acceptable. Of course, the load must be free of excess grease, oil or other contaminants. Prepared plate and structural (P&S) comes in the form of I-beams, channel, angle, plate or pipe. It must be a minimum of one-quarter inch in thickness and no larger than 2 feet by 5 feet. Pipe cannot be larger than 8 inches in diameter.
“The overly detailed descriptions of prepared scrap on our websites are an attempt to prevent disagreements at the yards,” Gongola says. Those websites, he says, are a key to the company’s profits.
“They became a great marketing tool,” Gongola says. “If you read it on the website (grade, specs, pricing), then we’ll honor it. If ‘someone told you ... ,’ we probably won’t be able to help you,” he says.
If there is a dirty word at any of the yards, it is “downtime,” as is the case with most scrap yards. “As our volumes grew, we couldn’t afford downtime,” Gongola says. “We found that we were hard-pressed to honor our service commitments when our equipment went down. Since we kept getting more business by promising big, we either had to buy reliable equipment or shut up.”
Helping the company meet the challenge was Reco Equipment, Gongola says. “They helped us chose the right-sized equipment with important features for scrap yard use. While other dealers tried to woo us by offering comparable machines at 5 to 10 percent less than the Liebherrs, Reco sold us on value, longevity and fit,” he says. Reco also helped find financing and, for the oldest units, the company offers support with prompt parts and service, Gongola adds.
“We operate five Liebherr machines and two Terex machines, which Reco supports,” he says. “While we love both brands, we more satisfied with Reco than nuts and bolts of the machines.”
Elkins runs identical equipment at all of its facilities in the name of efficiency. “This is easy when you buy everything new, but we still buy used equipment for half of our needs,” he says. Therefore, the company matches brands and (as best they can) models. Across the company, Elkins operates:
- Two Sierra shear/logger/balers;
- Two E-Z log balers from R.M. Johnson;
- Five Liebherr material handlers;
- Two Terex excavators;
- Two John Deere wheel loaders;
- One Liebherr wheel loader; and
- One SSI Shredding Systems 100-horsepower shear shredder.
The shredder is used to process 60 tons of material per month from a single commercial customer.
Gongola says he fears his company is below average at maintaining its equipment. “We are usually reactive and pay too much in repair expenses every year,” he says. That is another point on his to-do list.
“It’s not very exciting,” Gongola says of his business. In fact, it is a well-thought-out operation that uses planning to overcome other shortcomings, including market changes. Gongola says he finds himself frequently learning from his experience in other industries, such as the microbrewery in Morgantown, W.Va., that he was involved in.
There is little doubt that, as a seasoned businessman, his success today is based on lessons learned from diverse business ventures, including residential real estate in Elkins. When he looked at career opportunities, he never imagined himself discussing shredders and hopper cars.
Although his family has a long history in recycling and scrap, Gongola did not see himself as part of that game. “I wanted nothing to do with the dirty, parochial junk yard,” he says. “I kept as much distance as possible between my family, that business and myself.”
He went away to private school in Baltimore and then studied finance at college with a tract towards becoming a bond trader in New York.
He chuckles. “It turned out that junk—not junk bonds— was my future,” he says. “Early in my senior year, while recovering from a bout of food poisoning, I had an epiphany and decided that I would go to work for my father in the family business.”
Gongola worked for his dad, Jim, for 10 years, then bought him out. Today, he owns three companies—Elkins Metal Recycling, Clean Metal and a new venture, a yard Gongola opened in 2013 in Oakland, Md., called Double M Recycling. As a group, the companies process mostly ferrous scrap (90 percent by volume) and handle nonferrous metal as a complement to the ferrous business.
“We still look a lot like the traditional mom-and-pop yard at all three locations,” Gongola says.
Ups and downs
Gongola would be the first to tell you that the company’s growth was not all smooth sailing.
“On the back of my Christian conversion in 2000, I started a company called Clean Metal that recycled postburn municipal scrap in Fairmont, W.Va,” he says. Clean Metal attempted to recover scrap metal from incinerator ash. That enterprise rewarded him with a full year of poor results.
“I moved the operations away from the mill (Weirton Steel) to a facility adjacent to the generator (Covanta) in Chester, Pa., near Philadelphia,” he says. “With some equipment and people I left in West Virginia, I started Three Rivers Iron & Metal in Fairmont, W.Va.
“Clean Metal was a complete failure by every measure,” Gongola says. When the processing facility burned down in 2005, he was forced to broker (not process) the raw municipal scrap to the emerging new breed of shredders called mega-shredders.
“I made enough money in this new brokerage business to pay off most of my debts and put some money toward buying out my father’s business in Elkins,” he recalls. In 2006, he closed Clean Metal and began operating Elkins Metal Recycling and Three Rivers Iron & Metal.
Things couldn’t get worse, could they? Lurking around the corner was the market crash of 2009. “We barely survived that market collapse, but in the last three years we have increased our volumes by 50 percent,” Gongola says.
Almost all of the companies’ volume growth has come from new operations in West Virginia that drill, develop, support and move gas from Marcellus shale formations to market.
The family got into the business when Gongola’s great-grandfather, Esrael Miller, and great-uncle, Morris Miller, started a scrap yard in Clarksburg, W.Va., called Miller Metals.
“They helped my grandfather—Bill Lefkowitz—open Elkins Iron & Metal Co. in Elkins in 1957 to take advantage of a booming local foundry and a vibrant coal industry in this area,” Gongola recalls. The foundry was Kelly Foundry, which is still in business today. In 1979, terminally ill Bill convinced his son-in-law, Jim, to leave his middle-management position at Fannie Mae in Washington, D.C., and move to Appalachia to run and eventually own the scrap yard. Jim purchased the business and operated it until 2006. In 2006, Gongola, purchased the assets of the business and renamed it Elkins Metal Recycling.
In January 2009, Elkins Metal Recycling began offering certified asbestos abatement services and demolition services for commercial, municipal and individual clients. Elkins Metal Recycling is now a turnkey contractor for asset disposal services in central West Virginia.
“The metrics of business are financial,” Gongola says, adding, “By most business measures, we’re not really successful.” He says in a five-year period, the company will break-even for three years, lose money one year and make money one year.
“My background is in finance, so I know what the limits of our debt service are, and I understand how to manage cash flow. We’ve enjoyed growth since 2010, but some of it was dumb luck,” he claims.
Luck, however, favors the prepared. And as golfer Gary Player famously said, “The more I practice, the luckier I get.”
Gongola says, “Most of my victories are private,” noting employees he helps, personal relationships built with vendors and customers, honoring his faith at work and doing work that is fulfilling and improves the communities where his companies operate.
“Take great pride in private victories and run your business in such a way that Recycling Today will never take notice of you. If you get to own or manage a scrap metal business, then you are truly blessed. Count your blessings,” he concludes.
The author is a contributing editor to Recycling Today and can be contacted at email@example.com.
Ship dismantling practices have received considerable scrutiny and criticism at times during the previous 10 years, both from protectors of worker health and safety in the developing world and from environmental advocates worldwide.
Much of the criticism focused on dismantling practices as they were taking place in nations including India and Bangladesh, where vessels from around the world were routinely being towed for dismantling and recycling. Critics contended that contractors and recyclers there were winning bids for these dismantling contracts in large part by ignoring environmental and worker safety and health best practices, and the critics often took photos and video clips to verify their claims.
In part as a response to these investigations, the United Nations International Maritime Organization (IMO) and other organizations held several meetings that culminated in the 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (the Hong Kong Convention or HKC). The document was drafted at a diplomatic conference held in Hong Kong in May 2009 that was attended by delegates from 63 countries.
The document is not yet in force anywhere in the world, but subsequently the IMO has released and amended several sets of guidelines that the organization says “have been developed and adopted to assist [nations] in the early implementation of the convention’s technical standards.”
Out with the old
The HKC is about more than standardization. It is “aimed at ensuring that ships, when being recycled after reaching the end of their operational lives, do not pose any unnecessary risks to human health, safety and to the environment,” according to the IMO’s website, www.imo.org.
The need for the document to be drawn up and adopted by nations around the world can be construed as an admission that some prior ship dismantling practices were causing environmental woes, injuries, sickness and even fatalities.
In 2005, Greenpeace and the International Federation of Human Rights (FIDH) jointly issued a report on shipbreaking practices in India and Bangladesh. On the environmental front, the report notes that significant amounts of asbestos, mercury and other heavy metals can be found in end-of-life vessels.
Asbestos can be found in heat-resisting or heat-absorbing capacities near engine and boiler casings, electrical cables, fire-safe doors and other parts of the engine room and the ship that require heat protection.
Mercury, lead and other heavy metals are found in switches, thermometers, light fittings, batteries and in insulation capacities on vessels. Often along for the voyage also, even if a ship is drained of its fluids, are petroleum compounds and other chemicals that still coat pipes and conduits throughout the ship.
The two organizations say the presence of these elements and substances can cause ill health effects among workers. These materials also may leech into the sand or soil where shipbreaking activities are taking place.
Regarding worker safety, the report’s authors write, “Gujarat Maritime Board in India records 37 [deaths] due to accidents from the beginning of shipbreaking activities in 1983 up to mid-2004. But, when compared to eyewitness statements, these official figures about deaths by accidents seem largely underestimated. In Bangladesh there are no records kept, neither by yard owners nor by the authorities. The only written sources are the reports of local media. We estimate that at least 1,000 people have died in [the city of] Chittagong due to accidents over the last decades.”
Whether causing worker health and safety issues or environmental problems, the Greenpeace and FIDH authors report that the shipbreaking practices they witnessed included “the illicit transfer and dumping of toxic waste to developing countries in the form of old vessels is a blatant breach of the UN Basel Convention regime that was carefully designed precisely to protect developing countries.”
A rising tide
The attention to the issue and the global response has already made a difference, according to Nikos Mikelis, a nonexecutive director of Global Marketing Systems (GMS), Cumberland, Md., one of the world’s largest buyers of obsolete vessels.
“The HKC is not in force but nevertheless it has started affecting ship recycling in a positive way,” says Mikelis. “In India the requirements that were imposed on the industry by the Indian Supreme Court in late 2007 were based on the requirements of the then draft HKC. India has, therefore, seen some important improvements in line with HKC. In Bangladesh the government has also imposed new technical requirements on ship recycling from 2011, and these requirements, to a large extent, have been based on HKC.”
When ship dismantling makes the news in the United States, it often involves reports of unsafe practices in South Asia or NIMBY (not-in-my-backyard) opposition to shipbreaking efforts in the U.S.
Nonetheless, some ship dismantling and recycling is taking place in the U.S., such as in Brownsville, Texas, where All Star Metals LLC operates as what it calls “a licensed and approved” ship recycler providing services to the U.S. Maritime Administration (MARAD) agency of the federal government.
All Star, since 2012 a subsidiary of Scrap Metal Services LLC (SMS), Burnham, Ill., has been operating since 2003 and in the past has taken on vessels including oil barges and the U.S. Navy aircraft carrier USS Cabot.
Its workforce will be kept busy throughout 2014 with the task of dismantling another Navy aircraft carrier, the USS Forrestal. “This is the largest aircraft carrier ever to be dismantled of this size and scope,” says Richard Gertler, chief operating officer of SMS.
Gertler adds, “All Star Metals was the first USA-owned and operated facility to be awarded this size aircraft carrier due to its environmental and safety compliance, its financial stability and strength and know-how to tackle this big venture.”
In Europe, Welsh ship dismantling firm Swansea Drydocks has been awarded defense contracts in that country and is currently dismantling and recycling the former HMS Cornwall, a Royal Navy frigate that was built in 1985 and was decommissioned in 2011.
“Developing Swansea Drydocks into a world-class ship repair and recycling facility has been a huge challenge,” said Karl Dunn, managing director of the firm, when the Royal Navy contract was announced. “It’s taken us several years of hard work and significant investment to be in a position to win this tender. As a result, we are beginning to achieve the goals we set for the business and we anticipate substantial growth over the next few years.”
The measures taken by the governments of India and Bangladesh will be necessary if they intend to become signatories to the HKC. Natasha Brown, a public information services officer with the IMO, points to Article 4 of the HKC when saying, “Parties to the treaty will be required to implement it.”
Article 4, in a section titled “Controls related to Ship Recycling,” states:
- “Each party shall require that ships entitled to fly its flag or operating under its authority comply with the requirements set forth in this convention and shall take effective measures to ensure such compliance
- “Each party shall require that ship recycling facilities under its jurisdiction comply with the requirements set forth in this convention and shall take effective measures to ensure such compliance.”
The full text of the HKC as well as links to guidelines that have subsequently been released are available at www.imo.org/OurWork/Environment/ShipRecycling/Pages/Default.aspx.
In addition to government agencies, owners of decommissioned vessels also have been made aware through the activist, media and diplomatic dialog that they will be expected to steer vessels toward safer harbors.
Says Mikelis, “The owners of some ships are implementing on a voluntary basis parts of the HKC, such as inventories of hazardous materials and requiring recycling yards to comply with the standards of the HKC.”
According to the IMO’s Brown, navies around the world “are not covered by the HKC, though governments are encouraged to apply the standards.”
Whether cargo vessels or military vessels are being scrapped, Mikelis says change is occurring, though sometimes slowly and sometimes because of additional government intervention, as in the European Union, where a new ship recycling regulation takes force in early 2014.
For the HKC to make a genuine difference, it will have to be adopted by the nations that are most active in ship dismantling.
According to the IMO, the convention is open for adoption by any nation. However, it will “enter into force 24 months after the date on which 15 states, representing 40 percent of world merchant shipping by gross tonnage, have either signed it without reservation as to ratification, acceptance or approval or have deposited instruments of ratification, acceptance, approval or accession with the [United Nations].”
Mikelis says the key to that adoption date lies with a handful of nations, and those nations do not likely want to be at a competitive disadvantage when the HKC goes into force.
“When the HKC enters into force, it will apply to countries that have acceded to the convention, and, therefore, in the beginning it will create two separate markets for the recycling of ships: one compliant with the HKC and the other noncompliant,” he comments. “As five countries (Bangladesh, China, India, Pakistan and Turkey) recycle 97 to 98 percent of all recycled tonnage, it is hoped that once or if all five have acceded to the HKC, then this will become a global standard which will be part of shipping’s normality.”
In the past several years, attempts to boost ship dismantling in the U.S. and Europe have been made (See the sidebar, “Added Buoyancy,” on page S64.), but to what extent the industry is shifting away from Asia is still unclear.
All-Star Metals LLC, Brownsville, Texas, recently was awarded the dismantling contract for U.S. Navy aircraft carrier the USS Forrestal. All-Star is a subsidiary of Scrap Metal Services LLC (SMS), Burnham, Ill. Richard Gertler, the chief operating officer of SMS, says All-Star was awarded the contract “due to its environmental and safety compliance, its financial stability and strength and know-how to tackle this big venture.”
Mikelis is not convinced that such contracts represent a larger trend. “The effect of the HKC in improving the competitiveness of European and U.S. recyclers compared to the established major recycling centers in Asia, I believe, is small,” he comments. “The price differential between Europe and South Asia is not only based on the difference of standards of compliance but primarily on the different cost of living (and, therefore, labor costs).”
As well, says Mikelis, steel mills, foundries and even rolling mills in South Asia have grown to rely on the metals harvested through ship dismantling.
He notes that when dismantling a ship it is possible to separate steel by flat plates and lengths of girders, beams and angle bars. Steel plate in particular can be reused directly in construction applications or it can be rerolled into bars or rods at rolling mills.
Mikelis says the rerolling process is simpler and demands less energy compared with melting steel scrap, helping keep costs down for Bangladeshi steel producers while allowing ship recyclers there to fetch a price about 10 percent higher for rerollable scrap.
To what extent, if any, the HKC shifts the geography of ship dismantling remains unclear. If the intent of the document’s authors is met, however, safe and environmentally sound methods of recycling obsolete vessels will become the standard no matter where they are dismantled.
The author is editor of Recycling Today and can be contacted at firstname.lastname@example.org.