ISRI CONVENTION: A View on Pricing

Abbot told attendees that he realized the need to have a dialogue concerning the way the prices are arrived at in AMM. “I hope not to turn defensive. I hope you’ll not turn offensive,” he joked with the attendees of the session titled “The Pitfalls of Price Transparency.” 

As far as he can see, Abbot said price transparency has no pitfalls, adding, “Transparency is something we’re all seeking.” However, Abbot said he does think it is necessary to examine the method of price discovery AMM uses and the way the prices are used by the publication’s readers.

Abbot explained the “simple” method AMM reports use to determine pricing: Reporters phone contacts and ask them questions regarding their transactions. The reporters then assess the information they receive without weighing one dealer’s opinion over another.

“Not all of the information we receive is provided with noble intentions,” he added. He also explained that some sources decline to give an actual numeric figure, simply responding that their prices have either gone down three or up two. This method of reporting is “too variable” and provides little meaning, Abbot said, resulting in AMM losing track of the outright price.

Abbot said AMM’s pricing is the result of an “artistic approach” rather than a scientific one, and is therefore somewhat subjective. “I don’t think there is a perfect method for price discovery,” he added. In regard to AMM’s method, Abbot said, “We know there can be improvements.”

Because AMM provides historical pricing information, Abbot said, the information reflects what has happened in the market rather than what is to come. This presents benefits and drawbacks. AMM’s historical pricing allows the publication to list a variety of grades and locations, Abbot said; however, with all these grades and locations, it is difficult to remain relevant, he acknowledged.

During the question and answer period, Ben Morris of Morris Recycling, New Albany, Miss., presented a chart detailing the actual price Morris has received for ferrous scrap over the last five years as it compared to the AMM published price. The average variance was $70 a ton. Referring to AMM’s price discovery method, Morris said, “The fact is it doesn’t work.”

Morris added that he would be willing to send every contract every month to AMM for reporting purposes, provided he could sign a confidentiality agreement. Abbot, however, said that he feared legal issues would arise with that kind of agreement.

Another attendee suggested that AMM put its methodology in writing and drop contacts who purposely providing misinformation.

Abbot responded that AMM will decline comments from sources who fail to provide an actual figure in the future. “We won’t publish information from sources who won’t give full disclosure,” Abbot said.

A third attendee suggested that AMM obtain information from scrap dealers as well as consumers and compare these figures against one another to arrive at a more accurate price. Abbot, however, said he doubted that putting two legs of a transaction together was feasible.

The ISRI annual convention took place April 9-12 at the Marriott World Center in Orlando.