Curbing their enthusiasm

Features - Largest Ferrous Scrap Processors

North America’s largest ferrous scrap processors are staying the course but are finding volumes difficult to grow in the current market.

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April 23, 2020

Photos by Brian Taylor

Companies with multiple locations and, in most cases, significant auto shredding capacity largely have spent the previous two years managing existing operations and trying to coax as much scrap as possible into their yards.

Recycling Today’s 2020 list of North America’s largest ferrous scrap processors does not include any newcomers. Also, in contrast to nearly every previous edition of this list, none of the 20 largest companies from two years earlier was acquired.

Volume figures for 2019 were, on average, about 8 percent lower for companies that reported their 2019 and 2017 annual figures to Recycling Today. The reduced volumes largely were attributable to a calendar year that featured scale prices that headed downward in the spring and the fall.

The lower scale prices meant that even good operators struggled to achieve volume growth. While growth—and profits—were sometimes hard to find in 2019, the companies on our list did their best to manage through the difficult year and into what they hope will be a better year in 2020.

Best of times, worst of times

For America’s steel industry, 2018 was one of the most profitable years on record, and in the case of some scrap-melting electric arc furnace (EAF) steelmakers, the most profitable year they have ever had.

Scrap processors, even those who are subsidiaries of major EAF steelmakers, did not necessarily enjoy the same profit margin throughout that year. However, most processing firms could look back at the pricing, volume and margin aspects of 2018 and consider it a good year.

The following 12 months were not nearly as kind, especially for processors. While steel output remained high, steelmakers saw prices and margins decline throughout the year. Earnings reports covering 2019 show slimmer margins in the second half of the year for all steelmakers and net losses for some—particularly operators of integrated basic oxygen furnace complexes.

Scrap processors fared no better. Sims Metal Management Ltd., which operates globally and has its U.S. headquarters in Rye, New York, experienced a net loss for the six-month period that ended Dec. 30, 2019.

The company says it lost about $15.5 million in that time frame, which is the first half of its 2020 fiscal year. That contrasted with nearly $110 million in profits for the first half of its 2019 fiscal year, covering the second half of the 2018 calendar year.

Sims cited lower metals prices as spurring an 18 percent decline in sales revenue from one half-year to the next, according to remarks accompanying the company’s financial results.

Other publicly traded scrap firms, such as Portland, Oregon-based Schnitzer Steel Industries, reported similar difficulties in the second half of 2019. Most of the companies on Recycling Today’s list are not publicly traded and do not share their results, but it was widely acknowledged in the industry that it was tough to maintain a profit margin and a healthy inflow of scrap during much of the year.

Quiet on the M&A front

Noteworthy for its absence in 2018 and 2019 was the amount of merger and acquisition (M&A) activity in the scrap processing sector. The decade came to a close with only a few transactions having been announced, with several of these involving distressed assets.

St. Louis-based Alter Trading Corp., the seventh-largest company on our 2020 list, made one of the larger moves in the time frame when it acquired the assets of Wisconsin-based United Milwaukee Scrap out of receivership.

The acquisition, announced in December 2019, provided Alter with five additional locations in southeast Wisconsin —the company declined to reopen a sixth—including a shredder in Milwaukee that it may not restart. (Alter already operates a shredder in the city.)

In addition to picking up the United Milwaukee Scrap assets, Alter purchased Michigan-based Schneider’s Iron & Metal in 2019. That firm operated four facilities, three of which were in northern Michigan and the other in Wisconsin. Alter retained several Schneider managers and folded the facilities into its northern Wisconsin operating division.

In August 2018, Alter made one of that year’s largest acquisitions when it purchased Arkansas-based Tenenbaum Recycling Group. That 120-year-old family business operated 10 facilities in Arkansas and Missouri, including two auto shredders.

That same year, Alter also sold off some capacity to another company on Recycling Today’s 20 Largest Ferrous Scrap Processors list. In November 2018, California-based SA Recycling added to its holdings in the Southeast by buying Alter’s shredder yard in Mobile, Alabama, and a second facility in Mississippi.

Other firms were quieter during the two-year span or focused on operations outside the U.S. or in different operating sectors. The biggest acquisition made by Sims, the largest volume ferrous scrap recycler in North America, was of a U.K.-based scrap processor.

Steel Dynamics Inc. (SDI), Fort Wayne, Indiana, which owns the third-largest processor, OmniSource Corp., made another globally focused recent acquisition. In early 2020, SDI announced the purchase of a scrap recycling firm with six locations in Mexico.

The biggest announced investment by Texas-based Commercial Metals Co. during the two-year period was not within its scrap division but instead was the opening of an EAF “micromill” in Durant, Oklahoma.

Another EAF steelmaker that also processes ferrous scrap, Nucor Corp., seems to be paying more attention to steel output rather than to scrap. The Charlotte, North Carolina-based firm, which owns the No. 4 ranked David J. Joseph Co., has invested in steelmaking and finishing in Arkansas, Florida, Kentucky, South Carolina and Mexico in 2018, 2019 and early 2020.

The cyclicality of the steel and ferrous scrap sectors seems unlikely to depart from its volatile ways in the new decade. Recycling Today periodically will revisit how the ups and downs of the market will change the composition of our list of the largest ferrous scrap processors in North America during that 10-year stretch.

The author is the Recycling Today Media Group’s senior editor and can be contacted at btaylor@gie.net.