Convention Coverage—ISRI 2001: A Scrap Odyssey

May/June 2001 

Mounted on excavators or other machines mobile shears give scrap processors the cutting edge they need when processing ferrous and nonferrous material.

ISRI’s 2001 convention certainly lived up to its theme of being A Scrap Odyssey, taking attendees on a stellar journey of learning, networking, socializing, and relaxing. 

The convention, held March 20-24, drew more than 2,300 to San Antonio, Texas, and treated them to five days of educational workshops, business opportunities, and the largest scrap industry exposition in the world.

Drawing inspiration from Stanley Kubrick’s futuristic film 2001: A Space Odyssey, this year’s convention focused on the future and how scrap recyclers can ensure their continued success.

Addressing this point at the opening general session, ReMA Chair Sam Hummelstein of Hummelstein Iron & Metal Inc. (Jonesboro, Ark.) stated that “the best way to predict the future is to invent it.” In particular, scrap recyclers must become more comfortable with change and learn how to profit from it. “We need to envision a future that is different from what we know today or what we were comfortable knowing yesterday,” he said.

To manage the future, recyclers must be creative, noticing the changes occurring around them and be willing to take risks. “Without risk, there is no progress and no hope of growth,” said Hummelstein.

In the end, scrap professionals need to rethink their businesses, looking “frankly at what skills and talents we currently possess and rethinking how we might use them differently,” he suggested. That will enable recyclers to take their companies to the next level. “Remember this,” Hummelstein concluded, “if you do not think about the future, you cannot have one.”

The future-focused theme carried through the convention’s 24-plus workshops, which were organized into color-coded tracks, and six commodity spotlights. In case you missed some of the action, here’s comprehensive coverage of these sessions.

Commodity Spotlights

Scrap recyclers love to hear pundits forecast the future direction of the commodity markets, and this year’s spotlights filled that bill, covering aluminum, copper, ferrous, lead and zinc, nickel and stainless, and paper.

Will Aluminum Rally? Though aluminum is technically in a bullish cycle, prices have not moved up dramatically. Have we already seen the high price, or is there a new peak ahead?
  
That was the question posed by James Southwood of Commodity Metals Management Co. (Wexford, Pa.) at the aluminum spotlight.

To provide an answer, he first reviewed supply fundamentals, noting that the U.S. aluminum industry is actually in deficit. That’s mostly due to massive production cuts by smelters in the Pacific Northwest, which have curtailed 1.17 million tons of capacity. “This is a huge tragic event that’s happened in the smelting world,” Southwood said, noting that these cuts have yet to bring about a price increase.

A decline in U.S. automotive production led to these smelter cuts, Southwood noted. In 1999 and 2000, U.S. carmakers produced an average of 17.1 million vehicles a year. Beginning in April 2000, the annualized average plummeted 40 percent from a high of 21 million to 12.7 million units—a loss of more than 1 billion annualized pounds of smelter production. “This is not a recession, this is a depression, so anybody who’s servicing the automotive industry is feeling the effects,” Southwood said.

The good news is that automotive production has rebounded to an annualized rate of about 16.5 million vehicles. “If we can hold these production rates,” noted Southwood, “then we’ll see quite a turnaround in demand for those who service this industry.”

Given the reduction in secondary production, aluminum consumers have increasingly turned to scrap as a raw material. In 1990, U.S. processors shipped about 8 million mt of scrap, and the scrap utilization rate was about 30.5 percent. In 2000, they shipped almost 11 million mt, and scrap’s market share was 33.5 percent, Southwood said. The current affordability of scrap is a needed benefit to consumers. If they didn’t have the savings afforded by scrap’s wide discounts to Midwest prime, they would “really be in the soup,” he stated.

Whether the U.S. aluminum deficit continues and whether prices rise depends on demand, specifically how the U.S. economy performs. If it slips into recession, the deficit could ease and the aluminum price could dip below 65 cents a pound, Southwood forecast. If the U.S. economy improves, the deficit will increase. For instance, if the economy grows 1 percent this year, aluminum could peak around 76 cents, while 2-percent growth could yield an 85-cent high and 3-percent growth could push aluminum over $1, Southwood said.

Advice for Scrap Buyers. What does it take to be a good buyer in the aluminum business? Whether you’re a scrap dealer, broker, toller, or consumer, the key is to know the other person’s business, said Robert David of Wise Metals Group L.L.C. (Linthicum, Md.).

Addressing dealers, David stressed, “If you know your business but you don’t know the buying habits of the other three, that’s not enough and you’re cutting yourself short.”

To be a good dealer, you need a niche, he said. When dealing with an industrial account, you must offer service, price, and payment, with service being the most important component. “You can talk price all you want, but if you don’t service the account, you can forget it because you’re not going to have it,” David said.

To succeed, dealers must learn to say no—that is, they must turn down some deals because “more is certainly not better in the dealer industry,” he noted.

The mantra of a broker, in contrast, is turnover—“more is better.” Brokers “must do the business,” David explained. “They must run their businesses from a short position because when you call and want to sell, they need a place to put it. If you know that, then you have an edge on the broker.” It’s also important to know that brokers must operate on spreads and that the broker is “there to service you, so make him service you,” David said.

Then, assuming the role of a consumer, David noted that “as a buyer, I must be consistent. I have to know what you’re doing and I have to be loyal to you. Uniform scrap to me is as important as uniform buying is to you.”

Scrap processors must also look at their consumers’ credit. “Do your homework,” David advised. “If someone says to you, ‘We don’t give out financials,’ then I say forget them.”

In the end, he offered, “If you only know your business, then I say shame on you because it’s not enough. No matter how well you know your own company, in today’s competitive, transparent, and tough world, it isn’t enough.”

Copper Battles the Bears. Views of the copper market’s future offered at the copper spotlight ranged from outright bearish to a bit more positive, at least for 2002.

Martin Squires, an LME analyst from Carr Futures’ London office, said his firm is a “copper bear” and predicted depressed metal prices through the second and third quarters, with cash copper expected to average lower this year.

Western World copper consumption will grow slower this year—1.8 percent—compared with last year’s 4.2-percent growth, he said. Leanne Baker of Salomon Smith Barney Inc. (San Francisco) largely concurred, predicting that Western World demand could grow 1 percent this year and 2 percent next year.

U.S. copper demand, she added, should worsen before it gets better, showing negative growth this year after a stretch of growth that averaged 3.4 percent in the 1990s, she said. According to Squires, the risk of a U.S. recession is rising and the U.S. manufacturing sector is contracting. U.S. industrial production, in fact, has declined each month for the past six months. While not predicting a “hard” landing for the U.S. economy, “the risks of such a scenario are rising,” he warned.

At the same time, LME stocks have been steadily declining, dropping from 6.3 to 4.5 weeks of consumption. Traditionally, that trend would point to “significantly higher metal prices,” but market sentiment and perceptions are now considered more influential than stocks alone, Squires said.

Globally, China should remain a strong importer of Western copper, though its purchases could decline from 500,000 mt last year to about 350,000 mt this year, he noted. Meanwhile, the former Soviet Union is expected to increase its refined copper exports to 810,000 mt, up from 600,000 mt last year.

On the production side, Western World growth has been slowing sharply, with only two new projects planned for 2001-2002, Baker noted. Meanwhile, Phelps Dodge was considering shutting down as much as 300,000 mt of capacity, in part because of rising energy costs. [The company did announce cutbacks of nearly 80,000 mt—a smaller-than-expected amount that reportedly “disappointed” the copper markets.] Still, copper could end the year in deficit, which would bode well for prices in 2002, Baker said, forecasting 85-cent copper this year, rising to 95 cents in 2002—barring a full-scale recession.

Though the next nine months will be “a testing time for metals,” Squires said, “demand and metal prices are expected to be robust” in the long term.

The Copper Scrap Perspective. After a decade of strong markets, both brass strip mills and rod mills can now offer only diminished demand for scrap. While brass and bronze ingotmakers are seeing “steady” business, what that really means is that ingotmakers haven’t grown much over the past decade, said Robert Stein of Louis Padnos Iron & Metal Co. (Holland, Mich.), who warned that ever-increasing labor costs in the United States could make it economically unsound to clean metals domestically, limiting the availability of certain types of brass scrap.

Only in the copper tubing industry did Stein report “fairly good” demand, though even there some markets have begun to soften.

Turning to the domestic secondary copper smelting industry, Stein bemoaned that the sector has nearly vanished. Nine former consumers of secondary copper are no longer buyers, while a 10th is struggling. While there have been a few recent entries or reentries in the consumption of No. 2 copper scrap, “the volumes are not particularly large and pale in comparison to what was once consumed in this country,” Stein noted.

Instead, foreign buyers now purchase much of the material that once stayed home. Such foreign competition did benefit copper and brass scrap processors—at least in the short term, Stein said. But the lack of ongoing domestic demand leaves these same processors “at the mercy of distant markets in which we have little or no geographic advantage over suppliers elsewhere in the world.” Moreover, many of these foreign markets are not “user-friendly.”

India, for instance, “has regrettably looked upon scrap as a source of governmental revenue” through “unrealistically high rates of duty,” Stein noted. And China, which accounts for 43 percent of U.S. copper and scrap exports, recently proposed changes in import duties—not all of which actually occurred—“which could have had disastrous effects on American exporters,” he said.

Despite such problems, Stein emphasized the importance of developing nations as consumers of U.S. copper and brass scrap. He also called for a review of “the way we buy, process, and market scrap copper and brass” in the United States, with an eye on making structural changes in the domestic industry rather than simply exporting scrap to nations with lower labor costs.

Remember the Steel Industry! The mood during the ferrous spotlight was perhaps best expressed by the speaker who noted it was “sadly fitting” to be holding the session near the Alamo.

"We can all be empathetic with the guys who were at the Alamo,” noted Joseph Alvarado from the Chicago office of Ispat North America Inc. “So while that battle was lost—and it certainly looks like we’re all losing the battle today—eventually the war was won.”

Likewise, Alvarado and his fellow speakers had little positive to say about current ferrous markets but did hold out the promise of eventually triumphing over these tough economic times.

The steel and scrap industries are facing a similar dilemma, Alvarado noted. Though certain indicators suggest good markets—such as record automobile production in recent years and a 40-percent increase in scrap consumption by electric-arc furnace (EAF) steelmakers in the 1990s—both steel and scrap are hurting.

“Something very basic is wrong,” Alvarado said, pointing to several key problems facing the steel industry. These include excessive capacity and oversized inventories, an accumulation of debt and a paucity of lenders willing to risk capital on the steel industry, the strong U.S. dollar, which makes it easier for competitors to export steel to the United States, and rising energy costs, especially for the majority of steelmakers that use natural gas-fueled furnaces.

Already, about a dozen steel companies have gone bankrupt with more to follow, Alvarado predicted. Unfortunately, he added, many of these firms simply go through Chapter 11 proceedings and get reconstituted rather than actually shutting down and reducing capacity.

Overall market conditions and rising energy bills have, however, contributed to cutbacks in the direct-reduced iron (DRI) industry, he noted. Ispat, for one, has scaled back production at its DRI facilities in Mexico, Germany, and Canada. Meanwhile, American Iron Reduction—a joint venture between Birmingham Steel Corp. and Georgetown Steel Corp.’s parent company—has stopped production at its Convent, La., facility, while Georgetown Steel’s own DRI plant is also idle.

One steel company that’s looking beyond the current downturn is Ipsco Inc., a Canadian minimill that also runs an operation in Montpelier, Iowa, and is in the process of opening a new site in Mobile, Ala. When operational, the Mobile facility will have 1.25 million tons of capacity, increasing Ipsco’s total to 3.5 million tons a year, said David Sutherland, based in the firm’s Lisle, Ill., office.

Sutherland noted how difficult it is for steel firms to make long-term plans now, and he stressed the need for industry restructuring. He also called for fast-track legislation to encourage greater energy production, including bringing in more oil from Alaska.

Though Sutherland said he’s optimistic about a “soft landing” for the U.S. economy, he does not expect it to be V-shaped—that is, a sharp decline followed by a quick upswing. “It will bounce back,” he said, “but it may be the third or fourth quarter before we get there.”

Charles Kurtti of Neenah Foundry Co. (Neenah, Wis.) also addressed the ferrous spotlight, focusing on the U.S. casting industry. A decline in casting shipments that began late in 2000 is expected to continue through this year, with overall shipments dropping an estimated 4 percent to 13.8 million tons—the lowest figure since 1993, Kurtti noted. Looking ahead, he pointed to industry projections of more than 16 million tons of shipments by 2010.

Noting that scrap merchants and foundries must communicate more, Kurtti expressed concern about the alloys that some foundries are encountering in scrap steel these days. He also cautioned the scrap industry against the idea of allowing material from decommissioned nuclear power plants and research sites into the scrap stream.

Lead and Zinc in Deficit. As the automotive industry goes, so go the lead and zinc industries. Unfortunately for those metals, that part of the economy has been down. The good news is that the situation could improve by year’s end, said Thomas Parker of Exide Corp. (Reading, Pa.) and Andrew Roebuck of Cominco Ltd. (Toronto) at the lead/zinc spotlight. 

In the increasingly global lead and zinc markets, Western World consumption has been exceeding supply, requiring consumers to import metal, primarily from China. “We can’t talk about lead and zinc without mentioning China,” said Parker, noting that last year China produced 560,000 mt, 480,000 mt of which was imported into the United States. 

For both lead and zinc, consumption outstrips supply, Roebuck said, noting that the metals “have been in deficit for most of the last seven years. Consequently, they are resorting to reducing stock.” Zinc inventories have decreased more than 60 percent since 1994, and lead stocks “are still falling,” he observed. “We believe the ability for zinc and lead to add stock in the next few years is hampered by announced production cuts and the potential for further cutting and any consumption spike in lead specifically.”

A lead concentrate shortfall will limit the amount of refined lead available this year, putting upward pressure on prices. Zinc could also see higher prices by year’s end, especially if there’s a spark in the U.S. economy, Roebuck said.

One challenge facing both lead and zinc, Parker noted, is continued pressure on margins. With smelter costs where they are, virgin metal can often be produced less expensively than secondary, so it’s not surprising that the number of U.S. smelters has decreased.

Stainless Scrap Comes Up Short. “We are presently in the middle of a severe scrap supply shortage” with no improvement at least until the end of the summer, said Andy Wilk of ELG Metals Inc. (Houston) at the nickel/stainless spotlight.

The current shortfall of stainless scrap is due to decreased availability of old or reclaimed scrap, which is “extremely price sensitive.” As Wilk explained, when the intrinsic value of nickel in scrap dips below $2.50 a pound, the volume of old scrap declines to the minimum level of about 130,000 mt a quarter. When the intrinsic value is above $2.50 a pound, more old scrap becomes available.

In the past few months, the intrinsic value was trending below $2.50 a pound, bringing about “a drastic decline in the availability of reclaimed scrap” and reducing the quarterly volume to about 160,000 mt. This decline isn’t fully visible now because there’s a time lag of three months for scrap availability to react to changes in the nickel price. That means the worst of the shortage will be felt in the next few months, Wilk asserted.

In 2001, external stainless scrap availability in the West could decline 11 percent from 4.4 million to 3.9 million mt, while total world external scrap supplies (including Eastern material) could drop 13 percent from 5.2 million to 4.5 million mt, Wilk reported.

Overall stainless melting output, meanwhile, is expected to increase almost 3 percent to 19.3 million mt this year, encompassing austenitic production growth from 13.8 million to 14.2 million mt, he said.

If this production boost occurs in the second quarter, “an additional 110,000 mt of stainless scrap would be needed to cover the demand,” Wilk said.

The stainless industry will likely experience a scrap shortfall at least through the second quarter, with any noteworthy improvement not coming before the end of the third quarter, Wilk said. In response, “stainless scrap ratios will be drastically reduced in most of the markets at varying rates.” Also, stainless producers will have to cover the 110,000-mt shortfall in raw material with purchases of primary nickel and ferrochrome, which could drive up prices for those materials.

On the plus side, such higher prices could draw out greater scrap supplies, in particular during the fourth quarter, Wilk observed.

$10 Nickel Ahead? If stainless producers do indeed face a 110,000-mt shortfall in raw materials and fill that gap with primary nickel, then “$10 nickel here we come!” quipped Jim Lennon of Macquarie Bank Group (London).

In reality, Lennon’s average nickel price forecast for 2001 was much more modest: $2.95, or 24 percent less than the $3.89 average in 2000.

Explaining this prediction, Lennon began by noting that 2000 was a solid year for nickel and stainless steel, with nickel consumption growing 2.3 percent to 1.027 million mt and stainless production rising 8.3 percent to 18.6 million mt. Though nickel supplies expanded, the market ended the year with a 42,000-mt deficit.

The fundamentals changed in the second half of last year, however, with demand and production falling dramatically, Lennon said. In the fourth quarter alone, U.S. stainless production fell 26 percent and Western World production slipped 7 percent compared with fourth-quarter 1999, he noted. This weakness has persisted in 2001, with stainless production expected to be down 7 percent in the first quarter and 6 percent in the second quarter.

In the third quarter, though, world production will begin to recover, posting year-on-year growth of 1 percent, with the fourth quarter showing stronger recovery of 10 percent, Lennon said. In the United States, fourth-quarter 2001 stainless production could be up 40 percent compared with last year’s final quarter.

That said, the outlook for 2001 and 2002 is “very much dependent on scrap supplies,” Lennon said, noting that he expects a slowdown in scrap availability this year and next. As a result, use of primary nickel in stainless production will rise about 2 percent in 2001 while secondary nickel usage will decline 4.5 percent.

Even with recovery later this year, stainless production and primary nickel consumption will each decline about 1 percent this year to 18.5 million mt and 1.036 million mt, respectively. Primary nickel supply, meanwhile, will grow 7.7 percent to 1.061 million mt, shifting the nickel market to a 25,000-mt surplus—hence Lennon’s average price prediction of $2.95 a pound. Nickel could go as low as $2.50 a pound in the second quarter, he warned, though lower scrap availability and potential supply cuts should limit the downside.

The outlook is rosier for 2002, with stainless production expected to grow 6 percent, nickel consumption rising 7.7 percent, and nickel supply expanding slower at 5 percent. The market would then move more into balance, showing a slight deficit and yielding an average nickel price of $3.40 a pound, Lennon concluded.

Scrap Paper Waits for Recovery. While markets for scrap paper are down like most commodities, there is hope for a recovery by next year and for continued stability in exports, said Patricia Mohr of the Bank of Nova Scotia (Toronto) at the paper spotlight.

Several factors have combined to affect paper demand, including a slowdown in print media advertising, a hike in postal rates, and maturation of the computer market, which has limited growth in cut-size paper demand, Mohr noted. The paper market has also felt the effects of a dearth of national special events, such as the Olympics and the presidential election, and a slowdown in consumer spending.

Despite generally weak U.S. demand, consolidation and capacity cuts in the North American market will limit the decline in paper and paperboard prices this year, Mohr stated. Offering some price predictions, she forecast the following 2001 annual averages: Northern bleached softwood kraft pulp, $590 a mt; uncoated freesheet paper, No. 3 offset, 50 pound, $740-$755; newsprint, $610-625; and linerboard, $420.

Scrap paper grades have suffered greater price declines than primary products, even though U.S. demand for recovered fiber increased 1.3 percent in 2000, Mohr said.

U.S. OCC prices could rebound temporarily if the Federal Reserve Board makes other interest-rate cuts, but a sustained recovery will require stronger U.S. nondurable industrial activity, which isn’t expected until later this year at the earliest, she stated. The good news for U.S. OCC and ONP is that China will have to increase its purchases of these grades because it needs high-quality fiber to feed its new recycled linerboard and newsprint machines.

Regarding prices for deinked pulp and pulp substitutes, Mohr said that they would decline through the first half of this year along with lower virgin pulp prices, with recovery not likely until at least the second quarter of 2002.

Managing Risk Through Hedging. The recovered paper market suffers chronically from volatility, largely because it is a diverse and increasingly global market. Supply-and-demand imbalances are typical in the scrap paper niche, and its interaction with the paper and paperboard industry and its products is complex.

 “Managing risk, particularly the risk of price, is so important because most of our businesses really do depend on price,” said Gary Helik of Tradition Financial Services Inc. (Stamford, Conn.), who discussed hedging as a strategy to gain leverage in the market. “Anybody who’s been in the business knows that these prices swing month to month, year to year, almost without any rational behavior.”
 
By hedging—defined by Helik as “a series of different kinds of transactions where you lock in pricing so that you have control of your priceline longer than 30 days”—you can create a more predictable revenue.

Through a financial arrangement, such as a price swap (a fixed price arrangement), price cap (to protect against higher prices), price floor (to protect against lower prices), or price collar (to preserve a revenue within a minimum and maximum amount), one can establish a consistent place in the market.

Red Track: Cutting Through The Red Tape

It isn’t easy navigating the many regulatory, legislative, and operational challenges in the scrap industry. The convention’s red-track programs, though, provided advice on the important topics of storm water compliance, antitrust investigations, Superfund lawsuits, and insurance protection.

A Storm-Water Wakeup Call. The U.S. EPA and state environmental agencies are stepping up enforcement of storm water regulations, so scrap recyclers must ensure they are either in compliance or exempt under the “no-exposure” provision, noted speakers at the storm water workshop.

The storm water regulations are part of the federal National Pollutant Discharge Elimination System (NPDES) program, said Daniel Weese of the U.S. EPA’s water permits division (Washington, D.C.). Under the NPDES, any entity that discharges processed wastewater into waters of the United States is required to have a permit.

Phase I of the storm water program specified permitting requirements for large municipal separate storm sewer systems (MS4s) and 11 industrial sectors, including recycling-related businesses with SIC Codes 5015 to 5093. Notably, these permitting requirements, which took effect in 1992, pertain only to the areas of a facility used for manufacturing, processing, or storage of materials, not the administrative buildings, parking lot, and other nonindustrial areas, Weese said.

Under Phase II, finalized in December 1999, EPA created a no-exposure exemption for companies whose industrial activities are not exposed to storm water.

“If you can qualify for this no-exposure,” Weese explained, “you don’t have to have permit coverage—but you do have to do something.”

Specifically, facility operators must either submit a no-exposure certification or apply for coverage under the program’s multisector general permit, Weese said, noting that the deadline to submit a notice of intent was Jan. 29 for facilities in states/territories where EPA runs the storm water program (namely Alaska, Arkansas, Idaho, Maine, Massachusetts, New Hampshire, New Mexico, and the District of Columbia).

Currently, the EPA and state agencies overseeing the NPDES program are targeting “nonfilers,” working to ensure that facilities covered by the program have applied for coverage. They are also seeking the 70,000-plus facilities that might qualify for the no-exposure exemption to ensure that they have submitted the required forms.

For more information on the NPDES program, visit www.epa.gov/owm/sw. 

Storm Water Compliance, Texas-Style. In Texas alone, there are an estimated 60,000 to 80,000 industrial entities covered by storm water regulations, and it’s the duty of agents like Bobby Caldwell of the Texas Natural Resource Conservation Commission (San Antonio) to ensure that they comply with the rules.

When checking a company’s compliance status, the first step is to call the company, notify its principals that the firm is covered under certain regulations, state that agents plan to visit the company to conduct an inspection, and ask that specific documents be available for review, noted Caldwell.

When the agents arrive, they meet with the company’s staff, indicating what they will be inspecting and what they would like to see. The agents then conduct the inspection and review the company’s paperwork, checking in particular to see if the firm is following the procedures of its storm water pollution prevention plan, Caldwell said.

At the end of the inspection, the agents provide an exit interview, telling the company officials what they found. For minor problems, the inspector might give a verbal violation. If the company has more serious infractions, the agents issue a notice of violation (NOV) letter with a deadline by which the company must respond to the violations, Caldwell noted.

For the worst violations, the agents will issue a notice of enforcement. In these cases, the company can opt to contest the citation and request a formal hearing. Sometimes, the agents will allow what’s called an “agreed order” procedure when the types of violations can be corrected in less than six months. Texas and other states also allow companies to sponsor a supplemental environmental project, setting aside part of their fine to do an environmental project that will improve the environment.

In instances where a company refuses to cooperate or communicate with the agents, a default order is issued, Caldwell noted.

“There’s a tremendous universe of parties that are affected by storm water out there,” he said, noting that his agency is trying to contact these entities and holding workshops on the regulations. Still, Caldwell stated, “there’s probably going to be a lot of enforcement activity.”

An Environmentalist’s View of Scrap. Though the scrap industry has “gone a long way toward lessening the burden on our landfills,” its practices have often “resulted in serious negative impacts on the environment,” said Andrew Willner of New York/New Jersey Baykeeper (Highlands, N.J.). And as environmental regulations tighten and the public becomes more environmentally aware, “pressure will mount on the scrap business to clean up its act,” he stated.

The public still views scrap recycling operations as junkyards, Willner said, and “changing this image will require the industry to examine itself and take appropriate and timely steps toward protecting the environment. This will not only have positive effects on the environment but also transform the stereotypically negative image of the industry into something more positive.”

One way scrap operations can protect the environment is by managing their storm water. After all, Willner said, “storm water runoff is the largest source of surface water pollution in most of the country.” Scrap operations can minimize storm water problems through source control programs, fluids recovery, storing scrap batteries indoors, technical controls, sweeping paved areas, and employee training, he noted.

Unfortunately, noncompliance with the storm water regulations is rampant, Willner said. While compliance is not easy or inexpensive, “in the long run it’s less expensive and less damaging to the industry and individual yard owner’s reputation and bottom line than protracted litigation, attorney’s fees, and an expert’s costs,” he stated.

For citizen’s environmental groups such as New York/New Jersey Baykeeper, litigation is always a last resort, Willner said, maintaining that “we are always interested in working with facilities to come into compliance voluntarily. Working together we can find creative solutions to vexing problems and avoid the additional costs of being in violation and opening yourselves to litigation from government agencies or citizen enforcers.”

Protecting Against Antitrust. The scrap industry is under government scrutiny for antitrust violations, primarily because of its structure, past conduct, and performance, said Robert Doyle Jr. of Powell, Goldstein, Frazer & Murphy L.L.P. (Washington, D.C.) at the antitrust workshop.

The scrap industry’s structure is such that a competitor can also be a customer or supplier, and vice versa. “These relationships provide a mechanism whereby competitively sensitive information can be exchanged between competitors,” Doyle noted. “Those relationships have indicated to the government that collusion is easy in this industry.”

Another reason for government concern is the consolidation trend in the scrap industry. “Fewer players,” Doyle explained, “make it easier to collude and exchange competitively sensitive information.” When targeting an industry for antitrust concerns, the government looks for “collusion or conspiracy among competitors, which can lead to anticompetitive effects such as higher prices to customers, lower prices to suppliers, and lower output, capacity, and quality,” Doyle said.

In building its antitrust cases, the government uses six investigative methods, said John McCaffrey of McLaughlin & McCaffrey L.L.P. (Cleveland):

• Grand jury subpoenas, which compel individuals or entities to produce documents or provide testimony. A grand jury subpoena is usually the first notice you’ll receive that there’s an investigation under way involving you or your company. This subpoena is usually used to collect evidence to support the government’s theory.
• Importantly, the defendant “has no rights in a grand jury investigation,” stated McCaffrey. “You have no right to be present to hear the accusations being leveled against you by the witnesses. You have no right to have your counsel involved in that process. And the government has no obligation to present evidence that would show your defense.”
• Interviews by FBI agents or antitrust lawyers. To prove its case, the government usually relies on witnesses, including complaining customers and/or suppliers, injured competitors, former or disgruntled employees, and business partners. “To the extent that you disadvantage your customers or suppliers, you are helping the government make a case against your own anticompetitive actions,” Doyle stated. The government will generally seek two or more witnesses to corroborate their testimony, and it will often give them immunity or favorable plea agreements. The government also builds its case on documents, including business records, credit card receipts, calendars, diaries, travel records, itineraries, correspondence, internal company memos, e-mails, phone records, meeting notes, and notes reflecting your mental impressions, Doyle said.
• Surveillance to develop leads and evidence.
• Development of informants inside the company and cooperating witnesses.
• Monitoring and recording of communications through use of an informant.
• Search warrants.

Given the government’s antitrust scrutiny of the scrap industry, recyclers must know how to protect themselves, Doyle said. A first step is to have a written antitrust policy stating that your company abides by antitrust laws. Employees must be trained on antitrust compliance and must sign a certification indicating that they have received this training and understand the rules.

Sometimes, government investigators or attorneys visit companies unannounced, with the goal of

• eliciting incriminating, false, or inconsistent statements from you;
• learning of possible defenses that the government has not anticipated;
• sizing you up and see how you react to questions;
• checking out your business operations; and/or
• establishing rapport with staff that they might later contact as witnesses.

In such situations, “you don’t need to talk with them,” McCaffrey said. It’s prudent, however, to sit down with the agents or attorneys, ask them to identify themselves and provide credentials, request them to explain the nature of their inquiry and outline the topics they wish to discuss, then cease the interview at that point.

If government agents show up with a search warrant, you should first identify the lead agent handling the search, McCaffrey advised. Exercise your right to get a copy of the warrant and affidavit, then fax them to your counsel. You should also select a “designated communicator” on staff to oversee the process and interact with employees. During a search, never consent to let the agents search an area or seize items not specified in the warrant. You have a right to a description of the items being removed, and you should identify what documents they’re removing that are essential to the continued operation of your business. After the agents have left, photograph the premises and memorialize facts about the search, McCaffrey suggested.

If your company receives a grand jury subpoena, you have some tactical options such as asking the court to quash or modify the subpoena. Your counsel can also attempt to reduce the scope or change the timing related to the production of documents. The most important decision, however, is to “identify one individual in the company as your custodian of record, the person responsible for complying with the requests of the subpoena,” McCaffrey said.

Offering final words of antitrust advice, Doyle said, “Be careful what you write, be careful what you say, and be careful to whom you say it.”

Superfund and the Courts. There’s good news about the Superfund Recycling Equity Act (SREA): It’s standing up in court, noted three attorneys at the Superfund workshop.

One large issue is whether SREA can be applied retroactively, said Daniel Steinway of Kelley Drye & Warren L.L.P. (Washington D.C.), noting that the courts have thus far been ruling that it does. 

“I think what we’re seeing is that these cases are setting a precedent for a clear determination that SREA ought to apply retroactively,” said Steinway. “In my view, that’s what SREA was expected to do in the first place.”

In his review of the ILCO case, Steinway noted that, though it ended in a settlement, the case raised many salient legal points. The court was receptive to arguments that many of the potentially responsible parties were small scrap companies that wouldn’t have had the capacity to measure a consumer’s environmental compliance status.

“Their ability to detect obviously isn’t as great as some of the large companies in the United States,” Steinway said, asking, “Shouldn’t those factors be taken into account in determining whether or not the ReMA members are covered by SREA?”

Regarding SREA’s retroactivity, Don Mitchell Jr. of Arent Fox Kintner Plotkin & Kahn P.L.L.C. (Washington, D.C.) quoted from a recent appeals court decision. “This is the key sentence in the whole opinion: ‘Congress intended SREA to overrule the court decision holding bona fide sellers of recyclable materials liable under CERCLA.’ This basically says that the SREA statute is going to protect us if we do it right.”

Mitchell then reviewed the five requirements to qualify for SREA protection: the material sold must meet commercial specifications, a market must exist for the material, you must show that a substantial portion of the material was recyclable, it must have been a substitute for a virgin material, and you must have taken reasonable care to make sure the buyer was in compliance with environmental regulations.

Turning to the Superfund case involving Gould Inc., a battery manufacturer in Scranton, Pa., Mitchell noted that 10 defendants out of about 240 opted not to settle and to appeal the case as far as it would go. The courts initially ruled that Gould would pay 88 percent of the costs, but the appeals continued. SREA passed during the appeal process, giving recyclers more protection. On retroactivity and constitutionality, the defense won, Mitchell said. Though the case still faces hearings in district court, he expressed confidence in a positive outcome.

Adding to the Superfund discussion, William Funderburk Jr. of Stanzler, Funderburk & Castellon L.L.P. (Los Angeles) reviewed the Mobile Smelting case in which California filed a partial summary judgment motion on the issue of whether Section 127 of CERCLA is retroactive. The court denied the motion.

One lesson for recyclers in this case was: Save your documents, Funderburk said. “If you have documents on your site in a warehouse, it’s worth the storage to keep them,” he stated. “I know that many scrap dealers choose not to retain their records because they get in the way and take up valuable space, but my recommendation is to keep them for 20, 30, 40 years.”

Higher Premiums Ahead. The insurance market is in a state of flux, with carriers experiencing consolidation, rationalization, unsatisfactory profits, lower returns on their bond investments due to interest rate cuts, and flat premium prices, noted Jeff Fox of RecycleGuard Insurance Program (Rochester, N.H.) at the insurance workshop.

Currently, “we’re in a market where prices are going up in general,” Fox noted, adding that “the prediction is that pricing is going to continue to increase 12 to 15 percent rate overall.”

By insurance category, premiums for property coverage could increase 15 to 20 percent on average, and companies in high-risk areas (such as hurricane zones) could find it difficult to obtain the desired property coverage, Fox said. Premiums for commercial auto policies could rise 25 to 30 percent, while workers’ compensation coverage is also increasing, with three states in particular seeing sizable jumps—California, 40 to 50 percent; Texas, 30 to 40 percent; and Illinois, 15 to 20 percent.

“The overall financial results of the insurance industry will be affecting premium prices in the coming years,” Fox stated.

Reviewing RecycleGuard. On Oct. 1, 2000, ReMA adopted RecycleGuard as the official property and casualty insurance program for its members. Many members have already switched to this new program. For those in need of some persuading, Monica McNally of RecycleGuard offered the following reasons to use the program:

1. The ReMA Connection. RecycleGuard is the ISRI-sponsored insurance program, and the group works closely with ReMA to meet member needs.
2. Individualized Pricing. RecycleGuard views each account individually, believing that “you should be treated as an individual regarding your business and your experience, not just be part of a group,” McNally said.
3. No Common Expiration Date. That means you can change your insurance expiration date to fit your needs, such as aligning it with your fiscal year.
4. Centralized Underwriting. All of RecycleGuard’s underwriting is conducted from its Rochester, N.H., office. “We don’t have all of these fiefdoms doing their own thing,” McNally noted.
5. Dedicated Claims Service. All automotive and general liability claims are handled from a specialized RecycleGuard unit in Syracuse, N.Y.
6. Staff Experts. RecycleGuard employs loss-prevention specialists who visit your facility and put an insurance program together that meets your needs.
7. Industry-Specific Coverages. RecycleGuard was designed for the special needs of scrap recyclers.
8. Industry Involvement. RecycleGuard personnel are actively involved in the scrap industry through onsite visits, attendance at seminars and conventions, and more. “We believe you need to be involved in the industry that you’re insuring or you don’t know what their needs are,” McNally said.
9. Centralized Problem Facilitator. RecycleGuard offers a facilitator to help resolve any problems that develop with your policy.
10. Open Distribution. “We can deal through your agent or broker of choice, not one the insurance company appoints,” McNally explained. “That’s a real plus because it gives you the choice to work with someone who you feel is going to serve your needs best.”

In addition, RecycleGuard, which was previously insured by only Wausau Insurance Cos., will be offered by more than one carrier, giving recyclers broader options for coverage.

Recyclers can receive quotes on a RecycleGuard policy by calling 888/225-4725. Also, applications and information on the program can be found at www.recycleguard.com.

Protecting Your Environmental Bases. In addition to RecycleGuard, ReMA is working with ECS Underwriting Inc. (Exton, Pa.) to offer members a variety of options to insure against their environmental risks.

Those risks can include historical exposures such as prior land use and past environmental practices; scrap storage practices; underground and aboveground tank management; storm water runoff; failure to detect radioactive sources, which could contaminate your plant or a customer’s facility; and environmental damage you cause to customer facilities and disposal sites such as landfills, noted ECS’s Joe Madigan.

ECS’s policies, which cover loss, bodily injury, property damage, cleanup costs, and legal defense expenses, are divided into five modules:

• Module I—Third-party or off-site coverage;
• Module II—First-party or on-site coverage;
• Module III—Product pollution coverage, or potential contamination caused by any product you ship off-site;
• Module IV—Nonowned disposal site coverage such as a municipal landfill; and
• Module V—Contingent transportation coverage, which protects against contamination caused by your product while it is in transit.

Policy features included sudden and gradual coverage, a claims-made trigger rather than an occurrence-made trigger, defense costs included within the limit of liability, premiums as low as $5,000, retentions as low as $10,000, and policy terms up to three years, which can result in lower premiums, Madigan said.

Among the benefits of ECS’s environmental insurance, the company can provide risk control services such as a site visit that includes identifying exposures and suggesting improvements, reviewing Superfund Recycling Equity Act compliance, providing a seminar about radiation in scrap, reviewing storm water management plans, conducting environmental audits of your disposal sites, and assisting with permitting requirements.
ECS also offers claims management expertise, which includes having environmental attorneys on staff, offering a nationwide database of emergency response contractors, and overseeing cleanup projects to save time and money.

To apply for ECS coverage, download applications from www.ecsinc.com/evf.

Blue Track: Beyond the Monolith

Succeeding in the future requires the ability to adopt innovative approaches and discern important trends today. Key areas to consider include benchmarking, consolidation, commodity shifts, and the Internet.

Benchmarking Wisdom. In the session on “Benchmarking and Best Management Practices,” Mardi Coers from the American Productivity & Quality Center (Houston) noted that benchmarking requires you to be humble enough to admit that someone else is better than you at doing something and wise enough to learn how they do that something better.

It’s that exploratory phase—the search into how and why someone else does something better—that distinguishes benchmarking from simple numbers crunching or competitive analysis, Coers noted. But don’t expect the experience to be quick or easy. An average benchmarking study, involving four to six partners, can take four months or longer to complete. And remember: Benchmarking is a two-way street—you must be willing to share information on your own experiences as well as learn from your partners.

A typical benchmarking process has four distinct phases, Coers explained. 

The planning phase is used to study your own processes and establish the study’s scope. At this stage, you also form the benchmarking team and identify your benchmarking partners.

The collection phase focuses on gathering information from published sources to a detailed survey of roughly 35 qualitative and quantitative questions that you’ll ask of your partners.

The analyze phase lets you compare your performance with your partners’ data, identify the operational best practices and enabling practices, formulate a strategy to close the gap between your performance and that of your partners, and develop an implementation plan. Finally, the adapt phase requires you to implement the improvements discovered by the earlier phases and then continuously review and recalibrate the information as situations change.

A full-fledged benchmarking effort just for your company and using professional assistance can cost $70,000 or more, Coers noted. But an industry wide consortium approach can reduce that figure to $20,000 or less per firm. Coers has even heard of companies that made great progress with just a $50 conference call.

Companies should seek benchmarking data both within their industry and from outside fields, Coers suggested. A hospital, for instance, once benchmarked a hotel to speed up its admitting process, she noted, while an airline benchmarked its turnaround time against that of an Indy 500 pit crew.

The Future Is Now. From PCs and cell phones to ATMs and onboard computers in cars, “electronics are touching us every single minute of the day,” said Peter Muscanelli of the International Association of Electronics Recyclers (Albany, N.Y.) in the session on “Recyclables of the Future.”

Certain electronics have a relatively short life span before newer technology is developed to replace them, noted Muscanelli. That means there’s a lot of electronic equipment available for either reuse or recycling, as evidenced by the projected 18-percent annual growth rate for the electronics recycling industry, he said. 

The greatest value in used electronics, though, doesn’t lie in the recyclable content of metal, glass, or plastic, but rather in the reusable units and components such as printers, monitors, hard drives, and memories. These reusable parts command the highest value because they can easily be resold to people who don’t need state-of-the-art devices, Muscanelli explained.

Of the recyclable raw materials—of which roughly 100 million pounds are collected from electronics annually—steel is the leading commodity by weight followed by glass, aluminum, copper, and an increasingly small amount of precious metals, said Muscanelli.

At present, the commercial sector provides the bulk of electronics for recycling from sources such as OEMs, business users, and equipment-leasing companies. “Consumer electronics aren’t currently a factor in the market,” Muscanelli said, in part because electronics recyclers currently must charge for their services.

For scrap recyclers interested in handling electronics, Muscanelli offered a list of dos and don’ts that included working with a certified electronics recycler, separating electronics from mainstream scrap, and keeping electronics clean and dry until it’s clear what can be resold and refurbished. He warned against shredding whole electronics or cathode-ray tubes, baling electronics, and exporting electronics without knowing what final disposition awaits the shipment. Also, be aware of the potential hazards of recycling electronics, which can contain lead, beryllium, cadmium, thermohalogen resins, and even radioisotopes.

The Keys of Employee Training. Can learning be fun? Absolutely, said Mike Mattia, ISRI’s director of risk management, at the workshop on employee training. In fact, if learning isn’t fun, it won’t stick. 

Mattia began the workshop by asking attendees to do a quick physical workout. “If you get the blood pumping, the blood goes to your brain,” he explained. “You wake up. You’re more alert.”

He then led the group through games that can be applied to learning about a topic such as safety. Most scrap plant employees “probably graduated high school, would be hard-pressed to do it again, and they’re not thrilled to be in a classroom,” he noted. “So what you need to do is get away from the conventional learning concept and get into some game playing. Make it so that learning becomes fun.” Your company’s signage can have a lot to do with how much your employees learn about safety, Mattia said. Though safety signs should be posted in areas with the greatest potential hazards, it’s ironic that the most signs are in employee lunchrooms. “We put safety signs where there isn’t a problem,” he stated. You can also enhance the effectiveness of your safety signs by featuring your employees in them or asking workers to create them.

As for how to encourage safe behavior on the job, the best way is to use positive reinforcement rather than punishment, Mattia said. “If I reward you for your behavior, you’re going to do it again,” he noted. “Positive reinforcement is going to make the behavior happen again and again.”

Black Track: Keeping Your Company in the Black

Companies that don’t operate in the black aren’t around for long. Given today’s tight economic times, though, it’s harder to make a profit. As a result, recyclers must be as efficient and productive as possible and review all their options, including possibly selling the business.

The Company You Keep? Though the recent wave of scrap industry consolidation has stalled, the issue will become hot again someday, noted Mike Cohn of CFG Business Solutions L.L.C. (Phoenix) at the family business workshop.

Thus, owners of family businesses should be prepared with plans for whichever option—selling or keeping—they want to take, explained Cohn, coauthor of Keep or Sell Your Business … How to Make the Decision Every Private Company Faces.

For instance, he noted, if you want to sell your business when the next wave of consolidation comes along, it can take two or three years of preparation to maximize your firm’s value by building up cash flow, eliminating redundancies, establishing a record of audited statements, and other moves.

Overall, though, Cohn focused on the more intangible rather than financial aspects of family businesses, noting that issues of owner burnout, vision, loyalty, and legacy can be as important as the bottom line in deciding what to do with a company. Before making the decision on selling or keeping, Cohn said, family business owners should address at least five key areas—current business opportunities and risks, generational business differences, ownership succession questions, leadership and management strengths of the next generation, as well as personal/family financial needs.

Owners must also examine the different needs and desires of family members who are actively involved in running the business versus those who are simply passive stakeholders. Much of the tension within different generations of a family business stems from factors such as poor communication, unrealistic expectations, and unclear boundaries between family and business concerns, Cohn noted.

He also discussed various models for running a family business, ranging from the hands-on owner-manager system to the owner-investor version. And he explained the difference between a “family-first” company (in which, for instance, all family members are guaranteed employment regardless of talent and business resources are available as family perks) and a “business-first” firm that values business performance and competence over family ties and allocates the company’s resources strategically.

To determine whether the next generation is ready to lead the company—should you decide to keep the firm—Cohn recommended giving them a major project to work on. One especially useful project would be to let the next generation develop the plan for keeping the firm in the family. Their results will show both how interested and able they are to lead the company into the future, he concluded.

Green Track: Running an Environmentally Sound Operation

Though it ain’t easy being green (as Kermit the Frog once said), scrap recyclers must have safe, environmentally sound operations to avoid regulatory problems and survive in the long run.

Refrigerants: Do-It-Yourself. The refrigerants found in home and automobile air conditioners and so-called white goods such as refrigerators and water coolers pose both an environmental hazard and a potential profit center—if recycled safely and correctly, explained Rudy Garcia of RemTec International Inc. (Holland, Ohio).

In the session on air issues, Garcia and Tom Tyler, ISRI’s associate counsel/director of state and local programs, explained that while ozone-depleting refrigerant gases such as R-12 are no longer being manufactured or imported, they are valuable for reuse in older cars or equipment. An industry of EPA-certified firms such as RemTec exists precisely to recover these gases in a safe manner, but it isn’t always practical to rely on such outside contractors. There may not be a certified recovery firm near your scrap facility, or its operating schedule might conflict with your own needs.

So Garcia explored the steps that scrap recyclers should consider when managing their own refrigerant-recovery programs. These include seeking EPA 608 certification training for at least one employee who will be involved with the program, dedicating enough personnel to handle the expected volume of refrigerants that will be recovered, and obtaining the right recovery equipment as well as individually labeled tanks for different recovered gases.

But be careful what you buy: A recover-only machine costs about $1,500 compared with $5,000 for a more advanced recover-and-recycle machine that both removes and cleans the refrigerant.

Garcia also pointed out the necessity of informing EPA that you are planning to recover refrigerants, as well as the various documents you will need to maintain. And only sell your recovered refrigerants to an EPA-certified firm, he advised.

Remember, Tyler warned, if you accidentally release refrigerants into the environment, EPA can fine you up to $27,500 per violation per day.

Improving Community Relations. Good community relations is just good business, asserted David Borsuk of Sadoff Iron & Metal Co. at the community relations workshop. His company should know, given that it operates in the middle of Fond du Lac, Wis., surrounded by residential housing. Given the firm’s sizable processing operations, you’d think its neighbors could have cause to complain about noise, dust, and traffic. Not so, Borsuk said, because Sadoff has taken the time to reach out to its community.

A few years ago, for instance, the company invited its neighbors to its annual open house. “We thought this would be something we could use to bridge communication,” Borsuk said. And it did. People left the open house with a better understanding of what a scrap processing facility does. They were also more convinced of the firm’s efforts at cleanliness and were impressed by its commitment of capital.

Sadoff continued its outreach efforts through its company newsletter with equally good results. When the firm decided to move to a new site, for instance, it received support from its neighbors and local councilmen.

“When dealing with your neighbors, say what you do and do what you say,” advised Borsuk. “If you can’t have credibility with your neighbors, regulators, and state and local government officials, you are so undercut that anything you try to accomplish may be meaningless. It became apparent to us that the most important thing that we possessed was our license to do business.”

What you do locally can have a larger impact than you might realize, agreed Phillip Heston of Miller Compressing Co. (Milwaukee)—sort of like tossing a pebble into water.

“Where the pebble hits first, you’ve got to do concentric rings away from your operation,” he said. “It’s great to worry about the people far away, but the first people to feel you are the people close by.”

Miller has launched many initiatives for improved community relations. For example, its street sweeper also tends to a mile of city-owned streets near the plant. “It’s great community relations,” Heston said, “and it makes the public works department work a lot better with you.” 

The company also has a full-time nurse on staff who not only cares for employees but customers as well. Plus, Miller provides a nicotine patch to just about anyone in the community who wants to try to stop smoking.

In addition, Miller’s night security officer patrols the company grounds and other areas within a quarter-mile radius. “That’s mainly to chase the thieves away, but it enhances the whole property,” Heston said. The company also helps law enforcement agencies by shredding confiscated guns and burning confiscated drugs.

There are other ways to reach out to the community. Joanna Jiampietro of J.R. Gotwald Associates (Manlius, N.Y.) encouraged scrap recyclers to “take ownership of” America Recycles Day. “It means everything that we do,” she said. “It means recycling and buying what’s recycled. That’s what we do.”

Supporting America Recycles Day can boost recyclers’ pride in the industry and build a more positive image for the scrap business, she stated. “It is a positive thing to do, keeping in mind that recycling is your industry and that it is a big business—you hire people and you pay taxes,” she said.

Another way to achieve community outreach is through the Internet, said Manny Bodner of Bodner Metal & Iron Corp. (Houston), who created a Web site for his company for two reasons: to expand its business and become a source of information through “The Recycling Process” section of its Web site (www.bmicorp.com/recycle.htm), which discusses the process and advantages of recycling.

Bodner reviewed e-mails he has received from around the world from people—including students—who are using the site as a resource. “I urge each of us to continue your involvement in community relations,” said Bodner. “You’re going to find that it goes from local to global.”

Improving Scrap-Charging Safety. In the aluminum industry, molten-metal safety is a paramount issue, with a principal rule being: Keep water out. If water meets molten, unstable metal, it can lead to an explosion.

That’s what happened in 1986 at an aluminum baseball bat manufacturer in Kearny, N.J., where two employees died in a molten-aluminum explosion and subsequent fire. The cause of the accident? Most likely wet scrap that was charged into the furnace, noted Sey Epstein of the Aluminum Association (Washington, D.C.) at the workshop on aluminum scrap charging safety.

“Any time you bring together two liquids, like a molten metal and a cold liquid like water, you face the likelihood of an explosion,” said Epstein. At such temperatures, as the water turns to steam, it can expand more than a thousand times in volume. The energy released in a scrap-charging explosion from one pound of molten aluminum can equal three pounds of TNT, according to Epstein.

Aside from water, other materials such as ammonium nitrate fertilizer have caused incidents when included in aluminum scrap that’s charged into a furnace, Epstein noted.

Explosions aren’t the only dangers for aluminum-melting operations, which can also face fire and smoke, molten splashout, radiation, and contaminants such as used syringes and medical waste, said Bob Hubbard of IMCO Recycling Inc. (Rockwood, Tenn.). 

Incoming scrap can present other hazards, said Hubbard. Fire extinguishers, closed tubing, oxidized aluminum, and aerosol cans—even a simple disposable cigarette lighter—can be dangerous if charged into a furnace.

“The people that are processing the scrap have a responsibility just as much as the person that is selling them that scrap,” said Hubbard. “This is a two-way street.”

Hubbard recommended shredding material whenever possible and running the frag through a chip dryer, which will remove solvents from the material.

To address problems in scrap-charging safety, the aluminum industry implemented an incident-reporting program. “We now have 240 reporters representing 300 plants in 20 countries,” Epstein said.

The good news is that the program keeps the industry informed and provides good information and practice in resolving the scrap-charging problem. “The bad news,” he pointed out, “is that we still get between 60 to 125 reports every year on explosions.” 

Resolving the problem requires greater awareness, Hubbard noted. “We’re trying to educate people on carelessness and make them aware of something like dropping a lighter into a bale,” he explained. “It doesn’t seem like a big thing to a guy on the picking line, but it is a big deal. If that bale gets charged directly into a furnace, you just might have a big explosion.”

Farewell to an ‘Incredible’ Lady

The San Antonio convention marked a bittersweet milestone—the final convention of ReMA Director of Communications Evelyn Haught, who retired at the end of March. At the opening general session, ReMA Chair Sam Hummelstein praised Haught’s "12 years of incredible service" to the association, asserting that her "determination, hard work, devotion to the scrap recycling industry, and unique style have created an enormous effect on ReMA as a whole." Haught made it her "personal mission to present our industry and our association with professionalism and pride," said Hummelstein, who presented her with a plaque to commemorate her ReMA career.

Scrap’s Far-Out Scenarios

What will the future hold for the scrap business? A tough question to answer given today’s uncertain times. But a panel of six intrepid industry leaders threw out ideas on that topic at the "Workplace of the Future" plenary session.

ISRI Chair Sam Hummelstein of Hummelstein Iron & Metal Inc. (Jonesboro, Ark.) hosted the talk show-formatted workshop, which featured immediate past chair Shelley Padnos of Louis Padnos Iron & Metal Co. (Holland, Mich.), ReMA Secretary/Treasurer Frank Cozzi of Metal Management Inc. (Chicago), ReMA Vice Chair Joel Denbo of Tennessee Valley Recycling L.L.C. (Decatur, Ala.), George Adams of Adams Steel (Anaheim, Calif.), and Marvin Siegel of Carolinas Recycling Group L.L.C. (Lyman, S.C.).

Responding to a series of questions posed by Hummelstein, the panel covered topics ranging from recycling technology to employee issues and operational practices to legislative matters. Here are some of their observations and predictions:

• Will recycling rates continue to rise? "The rate of recycling will climb to the point where virtually nothing will go to the landfill," stated Adams. The main barrier to increased recycling will be financial--"who will pay for it?" Denbo asked. He also wondered, "What will happen to the collected material if the market hiccups?"
• Advances in molecular engineering will result in new materials--such as ultralight plastics that are stronger than steel--that could replace some current commodities.
• The paperless office won’t happen anytime soon.
• Regarding Design for Recycling, scrap recyclers "have to demand it now," Cozzi asserted. In particular, the scrap industry must join forces with environmental groups and the public to put pressure on manufacturers to remove potentially hazardous materials from their products. This won’t be easy. As Siegel stated, "I think we’re going to have to do battle on Design for Recycling."
• Technological advances will reduce the work force and remove employees from potentially dangerous work situations. There will be less manpower involved in the industry, more robotics, greater use of bar codes, and more environmentally benign technologies such as water or laser torches for cutting scrap.
• Scrap plants of the future will be better designed, completely paved, have minimal or zero emissions, be covered, soundproofed, or enclosed as much as possible, and nicely landscaped.
• Legislative and regulatory challenges will remain a problem. "We have all kinds of problems out there still waiting to come down and entrap us," Padnos stated, pointing to the mercury issue in shredder residue as just one example. "It’s important for all of us to be diligent, especially on the state level."
• The industry will be called on to recycle new types of scrap, including material from old satellites.

Never Fear, E-Commerce Is Here

Though the Internet can seem imposing, it’s nothing to fear. In fact, it offers many benefits that make the potential risks worth taking, said speakers at the e-commerce workshop.

"People think about e-commerce as, ‘How am I going to sell scrap online?’ or ‘How am I going to put my catalog up?’" said Christine Mason of MetalMaker Inc. (Chicago). "We encourage people to think about the Internet as something that affects their entire business. It’s the way you buy. It’s the way you sell."

The Internet can create market benefits, benefits in process efficiency, and benefits in the supply chain--important benefits in a business with tight margins like the scrap industry, Mason asserted.

For Ralph Pinkert of ScrapSite (Pittsburgh), e-commerce can’t be ignored. "Soon, it will be a rarity in business that any individual does not have a computer, that any individual is not connected to the Internet, or that any company does not regularly participate in e-commerce and utilize Internet marketplaces to sell its products or buy its raw materials. The pace of change continues to accelerate with each generation of new technology. E-commerce is part of arguably the greatest reshaping of business in the world today."

E-commerce can provide Internet marketplaces and trading exchanges for buyers and sellers, as well as help companies reduce costs, Pinkert said. What it won’t do is eliminate brokers, change the nature of the business, or disrupt current business relationships. "In fact, with regular use of e-commerce--which we believe will minimize misunderstandings and disputes--everyone would have more time to maintain and strengthen relationships," he said.

E-commerce can reduce the cost and time of managing multiple scrap customers in negotiating, cut the time required to get market information, and increase productivity, said Pinkert. E-commerce also provides a way to reach more potential buyers and sellers faster than other means.

James Diamond of Aluminium.com Inc. (New York City) asserted that the future of the industry will focus on supply-chain management. The Internet works as a hub between supply, consumption, and distribution and connects logistics, transaction, and administrative functions. It can bring together companies and integrate systems and languages. Finally, it can bring speed and efficiency to business while reducing cost.

E-commerce is also an excellent marketing tool, said Susanne Gaddis, a Seabrook, Texas-based communications expert, who noted that "as of this time last year, there were over a billion unique Web pages out there, and 407.1 million people right now are using the Internet. That’s a lot of customers--that’s what I’m thinking."

You can use the Internet for research by mastering search engines like Altavista, Excite, and Google, but the marketing potential is greater than that, she said. The trick is to get your Web site listed on those search engines. To do that, it helps to know a little hypertext markup language, or HTML, the code behind all sites. If you know that, you can place keywords in each document that a search-engine index can seek.

An Economic Reality Check

Progress is the goal of a free-market economy, and the goal of progress is to "commoditize" things to make them cheaper and more accessible to consumers, said W. Michael Cox of the Federal Reserve Bank of Dallas, who provided a crash course on economic trends at the opening general session.

Through free-market competition, the economy forces every industry to do its job more efficiently, Cox noted. Businesses must realize that the economy works for consumers, not producers. "The producer is the slave to the consumer in this economy," he said. "We have placed the consumer on the throne."

Also, Cox stated, "the proper role of a healthily functioning economy is to destroy jobs," noting that "we recycled people from the farming industry to manufacturing plants and, today, to service businesses and others. In essence, he said, "a capitalistic economy is one big recycling machine, recycling the old and making a new economy out of it."

Technology has been the driving force behind major economic changes. The first great paradigm shift occurred in 1895-1915 when people harnessed electricity, which led to the development of the automobile, airplane, telephone, radio, and refrigeration, Cox explained.

The second great paradigm shift began in 1971 with the debut of the microchip, which has led to five important "technology spillovers":

• rapid calculation of statistics through such tools as calculators and computers;
• smart products and tools, including barcode scanners, VCRs, microwaves, and cell phones;
• computer communications via the Internet;
• computational biology, covering genomics--the science of cracking the 160,000 lines of code in the human genome; and
• nanotechnology, or molecular engineering, which allows people to construct materials one molecule at a time to have exactly the properties they want and none they don’t want. This technology "will affect your industry the most," Cox said.

New technologies are spreading wherever possible to drive costs down and make operations more efficient. "Businesses that survive are those that find ways to introduce technology wherever possible and remove people," Cox said.

There is one thing, however, that will never be commoditized--service. As Cox concluded, "People who know how to treat other people well will never be plentiful."

Scrap and an Iron Lady

Former British Prime Minister Margaret Thatcher—now a baroness—opened her keynote speech in San Antonio by wondering whether she’d been asked to address the scrap convention because of her old nickname as "The Iron Lady" and closed with a talk-show-style question-and-answer session opposite ReMA Chair Sam Hummelstein.

In between, Thatcher—who led her country from 1979 to 1990—minced no words in explaining the Conservative political philosophy that helped make her Britain’s first female prime minister and the only one in the 20th century to win three consecutive national elections.

Thatcher, who reduced taxation in Britain and returned nationalized industries to the private sector, compared free enterprise to "economic democracy" because "it limits the power of government by maximizing the power of individuals." The proper role of government, she argued, "is to provide a clear framework and rule of law which enables the natural talents of the people to flourish—opportunity, prosperity, and progress will all follow."

Turning to the international scene, she praised Britain’s and America’s efforts to contain Iraq’s Saddam Hussein and defended President George W. Bush’s plans for an antimissile shield. "We needed it yesterday," she declared. "We certainly need it today."

Thatcher, who sent a British task force to recapture the Falklands Island within days of their seizure by Argentina in 1982, called for greater defense spending among European countries but also argued against the idea of establishing a European Rapid Reaction Force because she believes it would undermine the NATO alliance.

And while wary of China’s rising military strength, Thatcher predicted that China’s Communist leaders will not long be able to reform their country just halfway, by opening up the economy but not permitting political freedom. "Once you have economic liberty," she concluded, "political liberty will eventually follow."

—Kent Kiser, Aaron B. Pryor, and Robert L. Reid

Mounted on excavators or other machines mobile shears give scrap processors the cutting edge they need when processing ferrous and nonferrous material.