2003 Ferrous Scrap Supplement: Marginal Improvements

While, according to many economic forecasts, the U.S. economy is still in guarded condition entering 2003, the situation for auto shredder operators has eased somewhat when compared to late 2001 and early 2002.

Many auto dismantlers sat on their inventories during that time, awaiting more reasonable pricing. That pricing arrived when shredder operators began receiving more favorable prices for their shredded product from mills and foundries, increasing the prices they were willing and able to pay for hulks.

"Our volume is up about 300 percent over last year," Adam Weitsman of Upstate Shredding, a division of Ben Weitsman & Son, Owego, N.Y., says.

He attributes the increase to higher prices and quicker terms. "Our customers are getting paid within 48 hours. I think that’s a benefit," Weitsman says.

Marty Wilhelm, president of Youngstown Iron & Metal, Youngstown, Ohio, agrees, saying that the problem market for auto shredder operators started nearly two years ago with price compression. "We found ourselves competing against each other for the small amount of raw material that was available to move at the very low numbers that we were trying to pay," he says. "The price the mill was paying at $80 per ton compressed our margins so low, there was just nowhere to go on the bottom end other than to not buy material."

Wilhelm adds, "I think auto wreckers’ inventories were always there, but their propensity to sell has increased with a stronger market." He says that when the economics start working against the auto wreckers, they are less eager to sell their hulks to shredders. "They can leave it sit there, and they can sell a part off of it here and there and make [some] money. That’s what happens to the shredder market all the time," Wilhelm says.

"I think prices are at a level now where it’s good enough to get the flow in, but it’s also at a point where we can still make money," Weitsman says.

David Gold, co-owner of Standard Auto Wreckers, Scarborough, Ontario, and executive director of the Automobile Recycling Association’s Eastern Canada/Region 11 chapter, says auto bodies are always available. Because market conditions are poor in his area, however, competing shredder companies do not "seem to be bidding up prices for car bodies. At least in the last year, it doesn’t seem like anybody really wants the car bodies that bad," Gold says.

"I know they are getting more [per car body] in Montreal," Gold adds. "There seems to be more competition down there." Gold says he spoke with someone from Montreal who attributes the pricing in the area to American Iron & Metal’s active pursuit of scrap autos in the region, which has driven up the price.

While auto bodies are moving currently, competition in some areas has made it difficult to secure them at acceptable margins.

"Some competing shredders are making it more difficult to get [auto bodies] at the margins we want," the dealer from the South says. "It really just comes back to that margin target, because you’ve got to pay so many dollars to get [the hulk] out of the weeds. [An auto hulk] just doesn’t move out of a muddy field in the back of a guy’s 40 acres around here, because land’s so cheap. If it’s not worth much," the scrap dealer says, "he’ll just wait until it is."

Wilhelm contrasts last year’s market with the market going into 2003. "If we put things into perspective, last November, delivered mill price for frag was $80 per gross ton. This year, delivered mill price for frag is $110 per gross ton in our area."

The dealer from the South says that competition for auto bodies in his area has skewed the margins. Whether the situation will improve has "everything to do with the price of shredded material," he says. The price of shredded material in his region has declined from between $10 to $12 in the last few months, the dealer says. "If you get that back, there won’t be a problem; if you don’t, there will be a problem. If that pricing stays where it is today, it will be difficult to keep scrap moving."

Occasionally, to keep scrap moving, shredder operators have to reach outside their immediate regions to secure material.

However, Joe Darrah of J&K shredding, York, Pa., doesn’t find moving beyond his immediate area advantageous. "It’s just not economical for me," he says. "To go out there, I’d have to compete against those bigger guys. It’s just not worth it."

Darrah adds, "I actually have big guys calling me up looking for the finished product. [An East Coast dealer] called yesterday and offered good dollars for shredded scrap to export."

Gold says it’s common practice for dismantlers in Ontario to deal with shredder operators outside their region. "It almost seems as though the farther they go, the more they [get] paid, because the guys who are close feel they’ve got them locked up," he says.

Wilhelm says that shredder operators in his region are not "aggressively" moving outside of the area to secure scrap. "It’s become unnecessary because car bodies are moving at the reasonable numbers that we are paying these days."

While car bodies appear to be moving, shredder operators are seeking to shred supplemental materials.

While the auto shredder operators reached for this report say they have enough feedstock, some are running on abbreviated schedules and shredding items in addition to auto hulks and white goods.

Weitsman says that 60 percent of Upstate Shredding’s feedstock is automobiles, while light iron comprises 35 percent, with a mixture of busheling making up the balance. "We run stainless steel, irony aluminum, auto wheels, busheling and specialty items," he says. "We’re always looking for new things to shred."

When asked if obtaining feedstock to run five full shifts each week was a problem, the scrap dealer from the South responded: "Well, yes and no. There’s not enough material in the state for our machine. We bought a machine that was overcapacity on purpose. For what we want to buy, we scale down the production to 80 or 90 tons per hour instead of 150, which is what the machine can do. With that, we’re running a single shift and keeping it busy."

He adds that his company is covering its costs "because of the blend of feedstock we’re giving it. We need about $10 more margin to be tickled to death about where we are with it. Nonetheless, we are covering our costs."

Darrah says J&K Shredding runs its shredder from 6 a.m. to 10 a.m. during the week and all day on Saturdays. "You’re looking at maybe 4,000 to 5,000 tons per month that we shred," he says, adding that J&K does not have a problem securing enough material for its shredder. "Now, I know that the big guys looking for 500 or 600 tons per day, they are having trouble."

In addition to hulks and appliances, Darrah says his company shreds plate material, irony aluminum and materials for local foundries like ITT Engineered Valves, Columbia, Pa., and Buck Co., Quarryville, Pa.

Supplemental sources of scrap can help shredder operators remain profitable during periods when auto bodies may not be moving at desirable margins.

"Number one frag is a common product to supplement income," Wilhelm says. "A lot of shredders make a number one frag product."

The scrap dealer from the South says that auto hulks and appliances combined make up barely 50 percent of his company’s feedstock. "We run a tremendous amount of number two heavy melt," he says. "We run industrial scrap that comes in mixed busheling and mixed P&S, light structural-type stuff, stuff that is not worth the effort and labor to segregate, so we just throw it in the shredder and have it spit it out." He adds, "We’re much less reliant on autos and appliances than most shredders, which is a good thing for us. And we’re not the only people doing that. You’ve got guys in Chicago that I know and in the Great Lakes area who run nothing but industrial scrap through their shredders."

Whether the frag is produced from auto hulks or from industrial scrap, electric arc furnaces (EAFs) remain fond of the feedstock.

The Southern scrap dealer says EAFs "love" shredded scrap. "The price it’s at right now, you’d think they would be just begging for it compared to what busheling costs and compared to the yields they get on some of the other cut grades—not to mention the prices they are paying for those grades shredded. It is just a steal of a deal for them, pardon the pun," he says.

However, the dealer says, demand for the material is not very elastic. "It takes them months to change their processes. By the time they’ve changed, the market has changed."

The dealer continues, "But there’s a whole bunch of EAFs where nowhere near 50 percent of their feedstock is shredded. You’ve got several of them in my neighborhood in the South where shredded in not a third of their feedstock, not even close." He adds, "In my humble opinion, it should be more like 80 percent of their feedstock."

Weitsman, however, finds that EAF demand for his material is good. "A big portion of our scrap goes to the Nucor mills. Our sister company (Ben Weitsman & Son) is also in the new steel business, so we buy a lot of the product back as new steel," he says.

The Southern scrap dealer adds, "There’s been a lot of discussion about improving the quality of feedstock in steel mills, and shredded is the most quality controllable grade of ferrous post-consumer scrap, period. I think shredded logically should be the increasing feedstock of choice because of quality concerns in steel mills."

Can the current market conditions sustain the nearly 200 shredders in operation in the U.S.? The answer may vary regionally, but nationally, the consensus appears to be no. (For the most current list of auto shredders in operation throughout the U.S., see "Tearing it Up" in the October 2002 issue of Recycling Today.)

"Our region is overcapacity with shredders," Wilhelm says. "There are plans for two mega shredders to be installed over the next two years." He says both installations represent the relocation of shredders already in operation. "PSC (Phillip Services Corp.) plans the installation of a 120-104 mill moved from Canada to Canton, Ohio," Wilhelm says.

"Nationally, there is an overcapacity of shredders," Wilhelm continues. "I don’t know how many tons those shredders could do, but I’m sure it’s a lot more than what are produced."

Weitsman, however, finds the number of shredders in his area to be "just about" right.

Darrah points to an overcapacity in his area. "In a 65-mile circle, we have eight shredders," he says. "If you took York as the center of the axis and went 65 miles around me, you have two in Baltimore, one in Hagerstown, the one they just opened in Harrisburg, one in Reading, one in Coatesville and one in Pottsville."

Based on the forthcoming relocation of the Philips shredder from Hamilton, Ontario, to Canton, Ohio, Gold concludes that his regional market was overcapacity with shredders.

"The markets are pretty down, and there are still a lot of cars here in the Toronto area. For whatever reason, it doesn’t appear to be that profitable," Gold says of shredder operation.

The scrap dealer from the South says, "There are too many for sure in my region. I don’t, at this point, anticipate any one of them closing.