When Recycling Today hosted its State of the Scrap Recycling Industry Roundtable May 20, convening 10 scrap recycling executives, it was clear COVID-19, the disease caused by the novel coronavirus, and reactions to the pandemic were dominating the scrap industry landscape in North America.

The online roundtable discussion, which originally was scheduled to be an in-person event in late April in Las Vegas during the Institute of Scrap Recycling Industries (ISRI) Convention, was a two-hour conversation that touched on the challenges brought about by COVID-19 and the associated economic downturn, among several other issues.

The discussion began with the panelists offering their thoughts on the single greatest new challenge the pandemic has created for the scrap recycling sector.

Kevin Gershowitz, president of Gershow Recycling, Medford, New York, said that while his company’s employees have been paying attention to social distancing, “Our customers and peddlers, they need to be reminded every day.”

Gershow Recycling operates nine facilities throughout Long Island, New York, and employs more than 750 people.

The decline in volume was the biggest effect of the pandemic as of mid-May, he said, adding “it just doesn’t exist. Plus, in the shredding industry, we have a tendency to eat ourselves alive by trying to chase volume. Now, we are chasing volume that doesn’t exist—it’s just not out there.

 

“But, overall, I think we have been fortunate that we’ve been considered an essential business, so we at least have an opportunity to make something happen compared to so many other businesses that have no opportunities at all,” Gershowitz said.

Chad Olgin, co-president of Olgin + Efune, Phoenix, said his company has stepped up communication with its employees. “I’m sure everyone would say that communication is [vital] in any industry during any time; but, especially now, with so much misinformation, people don’t know what to do. They don’t know where to turn,” he said. “So, we have asked our management team at our locations to all be united in the way that we communicate with everybody and make sure that we are staying in front of everyone with all the changes that are happening in Arizona and anything federally that would affect our employees, as well. We are posting things around the property and reminding customers that we are following distancing rules here. Really good communication has been the best thing for us, and it’s helped our employees feel like they are being heard and protected.”

Formed in 2017, Olgin + Efune provides handling, processing and brokering of ferrous and nonferrous scrap and demolition services from a single location in Phoenix.

”I think resilience is probably the best word to describe the family business model.” – Becky Proler, president, Southern Core Recycling

Rick Dobkin, chief marketing officer for Shapiro Metals, headquartered in St. Louis, also mentioned the importance of communication. “We’ve got plants in six different states, and aligning our operations so that we are compliant in six different states is a bit of a challenge.”

Shapiro serves manufacturers across a broad range of industries and trades scrap metal globally. In addition to Missouri, the company has locations in Alabama, Georgia, Kansas, Tennessee and Texas.

Questions that were occupying the management team at Shapiro Metals included how they could supplement what looks to be a period of ongoing low volumes and preparing the company’s product offerings to go deeper into Shapiro Metals’ current customer base.

Joel Fogel, vice president of nonferrous at Middletown, Ohio-based Cohen, said, “I think one of the challenges is going to be understanding: What is the recovery going to look like? Kevin indicated flows, and we are all concerned about that. Volumes are off substantially, probably for everybody across the industry.

“So, one of the challenges coming out of this thing is understanding [and] matching labor with the volumes—both your purchase volumes and your sales volumes,” he added.

Cohen operates three facilities in Middletown and 17 additional facilities in Ohio and Kentucky. Established in 1924, Cohen provides ferrous and nonferrous scrap buying, processing and brokerage and auto parts inventory and sales and operates an auto shredder. Its affiliated company, Cobalt Recycling, provides electronics recycling, including collection, refurbishing, dismantling, shredding and hard drive destruction.

Matt Kripke, president of the brokerage firm Kripke Enterprises Inc. (KEI), headquartered in Toledo, Ohio, said, “We talk to recyclers all over North America, and I know that a lot of you who have retail operations, you shut down your retail for a while. So, one of the biggest effects has been that there was no painted siding in the aluminum world, and there were no UBCs (aluminum used beverage cans). So, those of us that take orders for an entire year in advance based on where our projected flows are, the scrap is not there to fulfill our commitments.”

KEI operates a second trading office in Florida and buys and sells nonferrous scrap, particularly aluminum. The company offers tolling services as well as hedging, trucking and storage. KEI also owns aluminum coil distributor Mid South Aluminum Inc., based in Jackson, Tennessee.

Kripke continued, “We have some consumers who are being very responsible about it, and we have some consumers saying, ‘I don’t really care what’s going on in the market, and I don’t care what’s going on in the world. We need our metal.’”

However, he said overall demand was not “all that great” as of mid-May, while “supply is so short.”

Becky Proler, president of Southern Core Recycling, Houston, said, “Speaking from Texas, which is oil country, we had two things happen to us. We had COVID and then we had the fall in oil prices. So, industrial account [volumes] are down here probably 60 percent, and they’re not looking like they’re going to come back quickly. A lot of the big oil service companies and oil producers involved in drilling, plus tubular products, things like that, their capital funds just got cut. So, we’re not looking at that coming back in the short term, and probably it’s going to take into a late quarter in 2021 to start seeing things coming back, unless the oil price jumps.”

Proler and her business partners founded Southern Core in 1989 and initially focused on automotive cores before evolving into a full-service scrap yard that specializes in cast and aluminum as well as all other types of ferrous and nonferrous materials. The company also operates an aluminum shredder.

”I think it’s really the next five years that will separate the good operators or the extraordinary operators from what I refer to as the rogue operators.” – Edward Kangeter, CEO, CASS Inc.

“I think it’s set as a new normal here in California,” said Edward Kangeter, CEO of CASS Inc., Oakland, California. “For example, Tesla, which is a large manufacturing facility locally, they were shut down and they [have about] 10,000 employees. We’re just under 200 employees, and I think the reason we were able to stay open during that entire period is we have done a really good job advocating on behalf of our industry, as well as our company, what the benefits of a company like this are.”

CASS processes ferrous, nonferrous and high-temp metals and manufactures secondary aluminum products.

He said the regulatory environment in Northern California is becoming more burdensome and the barrier to entering the scrap industry is “increasing dramatically.”

Kangeter added, “I think it’s really the next five years that will separate the good operators or the extraordinary operators from what I refer to as the rogue operators. And I think it’s going to completely change this industry, and I think it’s going to roll out from California across the nation.”

Many of the panelists were employed by or running family businesses, leading to a discussion about the health of the family business model within the recycling industry.

“There has been a lot of vertical integration by the steel mills, especially in our area [with the acquisition of] scrap companies,” Fogel said. “So, for us and for a lot of others, I think we have to think out of the box a little bit and see how we can vertically integrate within our own business. And we’ve done that through electronics or vertically integrated through some of the nonferrous stuff we are doing right now [such as investing in red metal scrap-to-copper cathode production facility]. It really depends on creativity and thinking out of the box a little bit. Doing things the way you were doing things 10 years ago, 15 years ago, 20 years ago does not really lend itself to growth.”

Gershowitz said he has found some challenges associated with the family business model but also advantages.

“The family business model for us makes things a little bit more difficult because, unlike the publicly traded firms or ones that might be family held but not operated by family, we don’t do layoffs,” he said. “I mean we cut overtime, but we don’t do layoffs. We take care of our people. We are paying everybody whether they’re testing positive or if they’re out because they are afraid to come to work. Everyone’s getting paid.

“We also have an advantage to some of those larger companies,” Gershowitz continued. “We’re able to get hold of PPP (the federal Paycheck Protection Program) money. We are more nimble. We can make decisions that maybe other larger firms can’t through their own corporate liabilities or responsibilities, such as we never stopped our [retail] trade.”

Dobkin said most family-owned scrap businesses are acquainted with the cyclical nature of the industry, which gives them an advantage. “I think where family-owned businesses can excel here is that we’ve seen this stuff before. We’ve got people who’ve been through numerous bad and down cycles, and so we have this sense of what you do when things get bad like this,” he said.

“Like Kevin said, we know the people who work for us, so we know our truck drivers. We know the guys working in the plants, and we know everybody in the office. And we like them; the decisions that we’re making aren’t strictly financial decisions, they are based on a team that we have built to take us into the future,” Dobkin continued. “So, we can kind of sit back and make some decisions that are important that aren’t strictly financial decisions.”

“I think resilience is probably the best word to describe the family business model,” Proler said. “It’s been resilient for over 100 years, and these third and fourth generations—I think somebody said it very well—we’ve seen everything. Family businesses know how to be flexible. They know how to operate in good times and bad times, and I think this is just part of the curve.”

Jacqueline Lotzkar, vice president of Pacific Metals Recycling International, Vancouver, British Columbia, also mentioned the nimbleness of the family business model. “I think family businesses have the ability to pivot and be agile.”

Pacific Metals is a fourth-generation, family-owned and operated recycling company that handles ferrous and nonferrous scrap as well as cardboard.

“I also think there’s an opportunity for the next generation to work outside the business [initially], and I think in many ways it’s best practice nowadays,” she said. “So, I think having the next generation go through these challenges and choosing to come back to the family business will make our industry stronger in the future.”

Our State of the Scrap Recycling Industry Roundtable panelists span a geographic and age spectrum that provides a diverse range of viewpoints on where the industry could be headed.

After the turbulence and low scrap volumes of the first half of 2020, optimism for the future is almost a necessity. Asking the panelists how the industry recovers, and where it might best pursue opportunities in the remainder of the decade helped demonstrate some of the diverse vantage points.

Panelists also weighed in on the future of the auto shredder, which is facing regulatory scrutiny but remains a processing method of choice for many scrap processors.

Chad Olgin of Olgin + Efune Recycling Co., Phoenix, said, “Now that we’re facing a shortage in scrap metal for automobile shredders, I think you’re going to see a restructuring of how the people who are running these shredders, especially the largest shredders, operate. I think you’re going to see people changing who’s running it and how they are running it and focusing more on where they’re efficient and trying to source scrap that isn’t going to cost them a ton of money, which is very hard to find right now,” he said. “I think the time is right for everybody to try and figure out the best way to run their machines very, very differently.”

Olgin said many scrap yards installed shredders over the last two decades. “I think people were trying to follow what other people were doing.”

 

Now, the success of these operators depends on how they can expand their downstream operations, he added. “Those will be the people who survive and make it through this.”

“People over-complicate shredding,” Kevin Gershowitz of Gershow Recycling, Medford, New York, said. “The biggest problem that companies have if they’re not making money at their shredders is not how good of an operator they are.”

Instead, he said, shredder operators’ success hinges on what they pay for their raw materials.

Gershowitz added, “The worst seller in the world is going to leave that much money per ton on the table when they’re selling their zorba or their shredded steel. What are you going to give up, a penny per pound? A couple of bucks a ton? It’s all made on the buy side, which is, as I said before, why we always seem to have a company or a group of companies that, regardless of what the spreadsheet says, regardless of what you think the intrinsic value of the automobile or appliance is, we all have that group of shredders that just seems to be overpaying because they want the volume.”

He also said he saw problems coming for shredder operators in the form of environmental regulations. “The big kick now with [the] EPA (Environmental Protection Agency) on a nationwide basis is volatile organic compounds (VOCs), which are emitted at shredders. Basically, as you shred the car, there’s some residual oil left in the engine; it goes into the shredder, and the shredder doesn’t get hot enough to actually burn it and destroy it, but it gets hot enough to create fumes. And the fumes get hot enough to become VOCs that go in the atmosphere.”

He said Gershow Recycling has been selected by the EPA for emissions testing on its shredders, adding that “the writing is on the wall in terms of the requirements [for a thermal oxidizer].”

This type of scrutiny creates operational and competitive issues, Gershowitz said. “I’m in a nonattainment air quality region, along with other large cities like Boston or Chicago. My friend Ben [Abrams of Consolidated Scrap Resources] is not, and yet, we have a circular radius that we can compete with each other. If I have an operating cost of $8 to $10 higher per ton for these new environmental controls, and he and others do not, we’re going to see scrap cross some county and state lines to the lower cost operator. This will be based on the implementation of controls that is not uniform around the country, even though it’s a nationwide effort by EPA. It’s a snipering of areas and cities that are considered lower air quality.” He added, “I see this creating real problems on the competitive side and operationally.”

More generally, the roundtable participants noted their challenges with assuring employees that their companies have their best interests in mind, the economy and complacency.

Matt Kripke of Kripke Enterprises Inc., Toledo, Ohio, said, “I’ve been talking to a lot of friends who are struggling getting their people back to work. There are people that are fearful.”

He thinks the biggest issue for the industry in the year ahead is making employees feel safe, but that extends beyond the pandemic concerns. “[D]o they feel you have their best interest in mind?”

“To me it comes down to relationships, both with your customers and your team,” Jeremy Miller, chief financial officer and quality, environmental, health and safety manager, Wm. Miller Iron & Metal, Winona, Minnesota, added. “I think it’s incredibly important to take care of employees.”

Wm. Miller Iron & Metal offers ferrous and nonferrous scrap processing, nonferrous scrap brokerage and electronics recycling. It also owns and operates a solid waste transfer station and a construction and demolition (C&D) materials transfer station and provides C&D recycling.

Miller said nurturing relationships with employees, suppliers and customers will be important. “We can gain business and increase customers and suppliers by developing and maintaining those relationships and just treating others with respect and honesty. That’s what we’ve been doing for 100 years-plus here, and it has worked out pretty well. I think it’s going to be even more important moving forward to be respectful and, certainly, honest and straightforward with your employees and your customers.”

Ben Abrams, president and CEO of Consolidated Scrap Resources (CSR), York, Pennsylvania, said his fellow panelists will need to “be at the top of your game” by figuring out “what works for your company, whether it’s workforce size, workforce structuring in terms of hours, who you’re bringing on and what kind of products you’re getting yourselves into, what kind of investments you may or may not make.”

”The biggest problem that companies have if they’re not making money at their shredders is not how good of an operator they are. ... It’s all made on the buy side.” – Kevin Gershowitz, president, Gershow Recycling

CSR operates six yards in central Pennsylvania and was formed by the merger of B. Abrams & Sons Inc. and L. Lavetan and Sons Inc. in 1999. The company operates an auto shredder and a downstream recovery system.

“I think the next couple of years are going to be tough with somewhat stable pricing that is the result of weaker scrap flows,” he said. “It’s going to change as the U.S. economy and the global economies try to get back into a rhythm and some growth. That’s a big unknown, so you have to figure out what works for you and go forth and do that. But I think you’re going to have some challenging economic times over the next few years before it gets good again.”

Olgin also advocated for taking a focused approach in business. “I think it’s going to [entail] buckling down and focusing on what we all do best. I think that will be where we see some positive growth in our industry over the next couple of months.”

”I think it’s going to be even more important moving forward to be respectful and, certainly, honest and straightforward with your employees and your customers.” – Jeremy Miller, chief financial officer and quality, environmental, health and safety manager, Wm. Miller Iron & Metal

But he also stressed that focusing on what a company does best should not result in complacency. “I think the biggest challenge we’re facing right now is complacency,” Olgin said. “But I think that as long as your management team is willing to not be complacent, and the spirit of the entrepreneur is ever-changing and realistically proactive and reactive to all this COVID stuff happening, I could see that it could be very positive.”

The peaks and troughs of the cyclical scrap recycling sector present an array of questions to scrap company executives each time the industry experiences volatile pricing and volume conditions.

The global economic slowdown caused by the pandemic and accompanying restrictions presented a dramatic trough in volumes for scrap recyclers, along with accompanying price volatility.

"Once you have your ‘degree’ in scrap, you’re super valuable, and the growth potential for your career is huge.” – Jacqueline Lotzkar, vice president, Pacific Metals Recycling International

However, panelists said they felt that now was a good time to make capital investments and hire talented employees who have become available as other firms have had to reduce their payrolls. Some even acknowledged that they no longer feel bound by certain norms, such as having all their employees on-site.

“I think, over the next year, we’re going to be in an unprecedented opportunity to gobble up talent,” Matt Kripke of Kripke Enterprises Inc., Toledo, Ohio, said. “There is going to be an incredible amount of people—really talented ones—from within our industry or other industries whose companies just didn’t make it. Maybe it’s scary to grab them at a time like this, but you could have an opportunity—that once in a lifetime opportunity—to get someone in this type of market. There have been skilled labor shortages, but I think it’s going to go the other way, and if you have the guts, it’s going to be a great opportunity,” he added.

Edward Kangeter of CASS Inc., Oakland, California, agreed. “Here in the Bay Area, the unemployment rate was below 3 percent, but it’s significantly different now; it’s double digits. And, believe it or not, we’ve been actively hiring through this process to fill some long-term positions that we’ve been looking for,” he said.

In CASS’ case, most of that new talent is from outside of the scrap industry. “There are really smart people who have worked in disruptive technologies that are very difficult to hire normally. And I think it’s an incredible opportunity for all of us.”

However, when it came to filling labor roles, as Jaqueline Lotzkar’s firm, Pacific Metals Recycling International, Vancouver, British Columbia, was attempting, challenges of a different form remained. “We are having a huge challenge because our provincial and federal governments have been extremely generous, and anybody who has been laid off is currently being paid CA$2,500 per month to stay home and not work,” she said. “So, for us, motivating people to come back to work has been a major challenge.”

However, she said her company has realized that when it comes to office personnel, “we don’t all need to physically be in the office. And so, when it comes to recruiting, you now don’t need to find someone physically close to you. You can actually look farther away, and the technology that we’ve adopted, I think, will allow us to recruit great candidates moving forward.”

Chad Olgin of Phoenix-based Olgin + Efune Recycling Co., said, “[W]e’re also hiring, even management roles, and we’re able to show that we’ve treated our employees well over this time. And other companies or places that have not done the same with their employees, I think some of those employees are looking for a change. They want somewhere that they can grow some new roots in this new norm, and [we can] offer that. I think that’s going to be an exciting opportunity for us in the future.”

When it comes to attracting young talent to their businesses, the panelists spoke of the factors working in favor of the scrap industry.

“Recruiting younger people, that is something that really kind of excites me,” Rick Dobkin of Shapiro Metals, St. Louis, said. “We really stress the dynamics of the business and how it is constantly changing, and you could walk into the office one day needing to sell your metal to a customer X and the next day it’s going to customer Y.

“There’s a huge amount of creativity needed as well. And, I think for most of us on this panel, at least if you have an interesting creative idea, typically any of us can walk around the corner and talk to the owner of the company about it,” he continued. “Plus, the owners of the companies are typically risk-takers, and they’re interested in trying new and different things. So, we like young people, and we like having them bringing their technical expertise to our company.”

“Investing now [is] what’s going to make you money when the economy and the flow of the market turn around.” – Kevin Gershowitz, president, Gershow Recycling

He also mentioned that “sustainability is sexy, and recycling is sexy,” adding, “When our company started out in the early 1900s, that wasn’t what it was all about; it was about supporting a family. Now, it’s a great dynamic and allows for a lot of creativity, and hopefully that is attractive to younger folks.”

Joel Fogel of Middletown, Ohio-based Cohen added that the culture of a company can aid in recruiting young people, whose reasons for accepting a job extend beyond salary and benefits. “We like to refer to our industry as Wall Street in jeans, and it’s something different every day,” he said. “One day, you’re not sitting behind a desk at a computer all day, another day you might be. The other day you might be in the yard doing something or managing some process.”

While Fogel said it is “an interesting industry,” few people know about it, “and you really have to sell yourself, your company and the industry.”

Lotzkar said, “A selling point for me, I think, is the recycling and sustainability ‘do good’ side of our industry. I think young people want to feel like they’re a part of a greater community, and I think our industry does that in a major way.

“It was said earlier that they don’t teach scrap in schools,” she continued. “You don’t go to school to learn about metals, so I think the learning curve is high. But once you have your ‘degree’ in scrap, you’re super valuable, and the growth potential for your career is huge. Talking about the opportunity for growth within a career is another way to entice people.”

In addition to investing in employees, Gershowitz said the downturn presents a strategic time to invest in capital equipment. “I had a conversation earlier today with [fellow panelist Ben Abrams of Consolidated Scrap Resources], and the description I used was, ‘Is your race car ready for the race?’ You don’t have to win the race, you just have to be able to get around the track in a good amount of time. So, investing now—rebuilding your mill, changing out your electric motor, putting a new plant in, fixing your trucks—whatever it is that your scrap yard needs, spending that cash now is what’s going to make you money when the economy and the flow of the market turn around.”

At the time of the roundtable, Gershow Recycling was in the midst of adding to its sorting capabilities downstream of its auto shredder in Medford, New York. “It’s going to be fairly massive,” Gershowitz said of the installation. “Our intention is to be able to process at the rate of close to 100 tons per hour of ASR (auto shredder residue). We’re moving along quite well, and we hope to be ramping up the conveyors and motors sometime in late August or early September. We are full steam ahead on the project.”

“An incredible opportunity right now exists to reinvest back in the business, and I think it’s mandatory for those of us who are taking a very long perspective,” Kangeter says. “If you’re not reinvesting in new technology, it’s going to be very difficult to compete in the future. And specifically, in California, the fifth-largest economy in the world, they’re trying to ban ASR as a daily cover at the landfills right now. And, separately, they are also trying to implement a nanogram standard [on emissions], so one in a billionth of a gram. What that means is, if you’re not actively investing in the core metrics of your business and looking forward to environmental compliance, when it hits, it’s going to be too late, and your competitor that’s already done that and thought about it will be ahead.”

“I think, over the next year, we’re going to be in an unprecedented opportunity to gobble up talent.” – Matt Kripke, president, Kripke Enterprises Inc.

However, Kangeter said he thinks it will be “impossible to achieve this standard,” adding that scrap yard operators in the state are taking legal action against California.

“Separate from that, if you’re not reinvesting in the core metrics of your business, when this other fight comes, you won’t be prepared to have the resources to make the fight,” Kangeter continued. “So, I think it’s a really smart point that Kevin made that now is an excellent time for us to be reinvesting. A little scary, I guess; but, the reality is if you have the financial ability and you’re in this business from a long-term perspective, it’s the smart business move.”