2008 Scrap Metals Supplement - Welcome

Planning for the Unplanned

Throughout the past several years, the metals industry has been one of the hottest business sectors. Acquisitions have increased, resulting in fewer players in the market. The largest players’ moves to grow their businesses are forcing many larger and mid-sized companies to ramp up their scale, as it is now a situation where practically every company is in play, and one day an acquirer could become the acquired.

ArcelorMittal’s actions have been headline news, but a number of other large-scale deals are taking place on the global metals stage, with copper, aluminum and other base metals all taking their turns in the spotlight. In perhaps one of the largest deals, BHP Billiton is looking to acquire its competitor Rio Tinto. If the deal does take place (and that is a big if), the combined company would become the largest supplier of iron ore for the open market.

These moves haven’t been limited to metals producers. Scrap recyclers realize they can’t be complacent if they want to grow their businesses and service these multinational companies. Deals in the scrap industry range from steel producer Steel Dynamics acquiring scrap processor OmniSource to large regional scrap dealers strengthening their geographic footprint by acquiring other dealers in a particular region to international firms acquiring U.S. scrap companies.

Volatility also continues to play havoc on markets. Prices for many metals are demonstrating pronounced swings, with some metals moving as much as 50 percent in only a few months, making it a more challenging environment in which to plan strategy.

Stepping away from the micro-economic issues of price and supply, macro-economic factors are adding an additional layer of complexity to the scrap recycling industry. Talking to many scrap dealers, one of the biggest issues is the weak U.S. dollar, which has provided an extra incentive to ship material overseas.

While scrap companies can make predictions about where the industry is going, a better training exercise might be to operate with the flexibility to adjust quickly, depending on the circumstances at hand. — Dan Sandoval

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February 2008
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