January/February 1989
Break open a broker and here’s what you’ll find: someone part seller, part buyer, part market watcher, and more. Here’s how this professional functions.
By Alan H. Cohen
Alan H. Cohen is secretary/treasurer at Central Metals Co., Atlanta, and president of ReMA's Metal Scrap Research and Education Foundation.
As scrap makes its way from discarded material to valuable raw material, it is constantly bought or sold. Many processors and consumers have marketing or purchasing staffs that find the best price for the product they are selling or buying. In other operations, the owner or manager performs these functions. At any point in this marketing process, for a company large or small, a broker can serve a useful purpose.
What exactly does a broker do? He's best described as a link between the consumer and the supplier--the buyer and the seller--in a commodity transaction. He watches and analyzes the market, helping both the supplier and the consumer understand current conditions and how they may be changing.
A brokerage firm may have an exclusive arrangement with a supplier, acting as a sales agent to market his products--or with a consumer, acting as a purchasing agent to fulfill his purchasing needs. In the absence of exclusive agreements, the broker, acting as principal, performs the sales function for the supplier and/or the purchasing function for the consumer.
More Than Marketing
There is a difference between a conventional agent and a scrap broker: An agent arranges a sale or purchase, while a broker takes legal title to, if not physical possession of, the commodity. A broker may purchase material before making a corresponding sale, or he may sell material before making a corresponding purchase. He may take delivery of the commodity and store it for a time before selling or shipping it. Or, he may trade it with a consumer for a finished good, then sell the finished good.
Besides marketing, the broker many times helps facilitate transportation. Because he deals with commodity shipments daily, a broker is often knowledgeable about appropriate transportation modes and their costs. In some cases, knowledge of low-cost freight rates may be what determines whether a transaction is consummated.
A brokerage firm may also finance a commodity's sale or purchase. The broker may advance the seller all or a majority of the proceeds of a sale days or weeks before the consumer (under normal terms) is willing to pay for the commodity. Or the consumer may wish to take longer to pay for the material than the supplier (under normal terms) is willing to wait for payment. In both cases the broker helps facilitate the movement of the commodity by acting as a financing agency.
Another function of a brokerage firm is following the market. Because a broker communicates with consumers and suppliers in many markets, he gains perspective on market activities and conditions. Supplying market information to both consumers and suppliers makes the broker important to the market's smooth functioning.
Brokerage Structure
Although scrap brokers perform many of the same functions, the structure of brokerage firms can differ. The brokerage operation that does nothing but broker materials usually has a number of traders and an office staff to back them up. Its office can be located anywhere there is telephone service. In some cases the firm has locations in more than one city, with a central office that handles the paperwork and other brokerage services.
In a brokerage/scrap processing firm, the brokerage operation is run in conjunction with a scrap processing operation. It may also have a number of traders and an office staff, with off ice space usually at the processing operation. This type of brokerage firm may receive and process material before shipping it to a consumer.
A brokerage/consuming operation typically has offices at the consumer's operation, with which it shares an office staff. It is not uncommon for this type of brokerage operation to receive material and reship it to other consumers, rather than use the material itself.
Regardless of how brokerage firms are set up, most have some variation of the following positions: trader, transportation consultant, accounting/finance staff, and administrative staff.
The heart of any brokerage operation is the trader, the person who handles the transactions. In small firms, the trader may perform many other functions. In large firms, traders may specialize by customer or commodity type or territory.
One of the support staff members who works most closely with the trader is the transportation expert. He arranges for the physical movement of materials and checks on the progress of the shipment--making the pickup and delivery appointments, gathering the shipping data, and accumulating the receiving data. He may also check on freight rates, tariffs, and other shipping methods.
The accounting/financing staff member usually makes credit arrangements with the seller and requests credit information from the buyer. He also ensures the gathering of documents needed to issue invoices to the buyer and make payments to the seller. When advances are made to the seller or additional terms are granted to the buyer, this person usually is involved in tracking the transaction.
The administrative staff is charged with the day-to-day functions that come with running a business.
Beneficial to You?
Many firms use brokers exclusively for their sales or purchases. Other firms use a broker to supplement sales or purchasing efforts. An individual firm must decide whether to spend the time, energy, and money to perform buying and selling functions internally, or to use a broker to assist in these functions--thereby leaving more time, energy, and money available for other activities.
Most firms tend to take the middle road. They find it to their advantage to maintain their own marketing and purchasing departments, using brokerage firms for supplementary service. Your best course of action is to evaluate your particular needs and determine whether a broker can help meet them most efficiently.
The Nonferrous Broker
By Stanton A. Moss
A nonferrous metal broker is as different from his counterpart on the ferrous side as night is from day. The nonferrous metal broker or merchant wears many hats. In one transaction, he may buy copper scrap for conversion into copper cathode or wire bar; in the next, he may purchase aluminum scrap to swap for primary ingot to be shipped to an extruder for casting into aluminum billet. He then may buy a trailerload of remelt zinc sows to be shipped to a zinc dust manufacturer--all this before his second cup of coffee. To be successful, the nonferrous metal broker or merchant must know markets and values of many different metals and arrange for homes for these different metals. In his "merchant" capacity he is purchasing for his own account and having the scrap processed to change its form and value.
What makes the nonferrous broker unique is that the value of the product he is handling can fluctuate by the minute. Quotes for copper on the New York Commodity Exchange can change constantly; the broker must make it clear to his customer that the quote he gives is for immediate acceptance. In the past, time has not been that critical when dealing with aluminum; a quote could be good for a period of time. Today, with the changes in the complexion of the market and in the type of aluminum scrap consumer, the details must be spelled out to prevent any misunderstandings. This has opened up many new opportunities for aluminum swap and conversion situations that in the past were limited to copper trading.
When comparing the activities of ferrous and nonferrous brokers, the value of the material must be taken into consideration. The value of a ton of ferrous can be $150, whereas the value of a ton of nonferrous metal can be as high as $2,000 or more. Financial exposure can mount quickly with these differences.
The trading of most nonferrous metals on a major exchange like the London Metal Exchange and the New York Commodity Exchange affords the nonferrous trader an opportunity to hedge his transaction. This does not provide full protection against market fluctuations because he cannot deliver scrap to fulfill his hedge obligation.
A nonferrous broker can be of great help to a large consumer who wants to take a position in the marketplace without upsetting the price. The consumer may commission a broker to purchase a large tonnage of material to be shipped to him, whereas if the consumer came into the market directly to purchase that tonnage the price would be driven upwards. On the other hand, a broker might be used to sell off excess inventories at attractive prices without upsetting the market price or identifying the seller.
The nonferrous metal broker has built himself a niche in the scheme of business and his longevity will depend on his own resourcefulness.
Stanton A. Moss is president of Stanton A. Moss, Inc., Bryn Mawr, Pennsylvania, and chairman of ReMA's Nonferrous Metals Committee.
The Stainless and Alloy Scrap Broker
By Arnold I. Plant
The stainless and alloy scrap broker's functions can be divided into two major groupings. First, activities between broker and consumer. As a rule of thumb, the broker and consumer meet monthly to discuss mill requirements. Based on proposed operating schedules, melt practice, inventory on the ground, and market situations, the mill purchasing department tells the broker how much of each item will be needed for the coming month's business.
Next, the broker and consumer attempt to reach an agreement on prices the mill will be willing to pay for the various grades of material wanted. Once this agreement in tonnage and price has been reached, the next step is to supply the materials at the price--while making a profit--and to make sure the scrap arrives at the consumer in a reasonably orderly manner. That is to say, all the required shipments should not be delivered in a single week, but should be spread over the contracted month.
Now, the other side of the coin. The broker purchases the scrap, doing so through phone calls, personal contacts, and just plain leg work. He keeps daily records to match purchases with sales and to match time of delivery with consumer needs. This process is ongoing. The main effort through this phase is to satisfy both processors and consumers with the price for the merchandise and with the delivery schedule.
For many years, the stainless and alloy scrap industry has run an "on-time delivery" operation, making certain its customers--the steel mills--always have the scrap they need, and as close as possible to the time they need it. This way of operating must continue. Stainless steel brokers must match the needs of their consumers to the supplying ability of their processors at a price fair and equitable for both.
Arnold I. Plant is senior vice-president at The Samuel G. Keywell Co. Plant Div., Baltimore, Maryland, and chairman of ReMA's Stainless and Alloys Committee.
The Waste Paper Broker
By William A. Nielsen
As scrap makes its way from discarded material to valuable raw material, it is constantly bought or sold. Many processors and consumers have marketing or purchasing staffs that find the best price for the product they are selling or buying. In other operations, the owner or manager performs these functions. At any point in this marketing process, for a company large or small, a broker can serve a useful purpose.
What exactly does a broker do? He's best described as a link between the consumer and the supplier--the buyer and the seller--in a commodity transaction. He watches and analyzes the market, helping both the supplier and the consumer understand current conditions and how they may be changing.
A brokerage firm may have an exclusive arrangement with a supplier, acting as a sales agent to market his products--or with a consumer, acting as a purchasing agent to fulfill his purchasing needs. In the absence of exclusive agreements, the broker, acting as principal, performs the sales function for the supplier and/or the purchasing function for the consumer.
More Than Marketing
There is a difference between a conventional agent and a scrap broker: An agent arranges a sale or purchase, while a broker takes legal title to, if not physical possession of, the commodity. A broker may purchase material before making a corresponding sale, or he may sell material before making a corresponding purchase. He may take delivery of the commodity and store it for a time before selling or shipping it. Or, he may trade it with a consumer for a finished good, then sell the finished good.
Besides marketing, the broker many times helps facilitate transportation. Because he deals with commodity shipments daily, a broker is often knowledgeable about appropriate transportation modes and their costs. In some cases, knowledge of low-cost freight rates may be what determines whether a transaction is consummated.
A brokerage firm may also finance a commodity's sale or purchase. The broker may advance the seller all or a majority of the proceeds of a sale days or weeks before the consumer (under normal terms) is willing to pay for the commodity. Or the consumer may wish to take longer to pay for the material than the supplier (under normal terms) is willing to wait for payment. In both cases the broker helps facilitate the movement of the commodity by acting as a financing agency.
Another function of a brokerage firm is following the market. Because a broker communicates with consumers and suppliers in many markets, he gains perspective on market activities and conditions. Supplying market information to both consumers and suppliers makes the broker important to the market's smooth functioning.
Brokerage Structure
Although scrap brokers perform many of the same functions, the structure of brokerage firms can differ. The brokerage operation that does nothing but broker materials usually has a number of traders and an office staff to back them up. Its office can be located anywhere there is telephone service. In some cases the firm has locations in more than one city, with a central office that handles the paperwork and other brokerage services.
In a brokerage/scrap processing firm, the brokerage operation is run in conjunction with a scrap processing operation. It may also have a number of traders and an office staff, with off ice space usually at the processing operation. This type of brokerage firm may receive and process material before shipping it to a consumer.
A brokerage/consuming operation typically has offices at the consumer's operation, with which it shares an office staff. It is not uncommon for this type of brokerage operation to receive material and reship it to other consumers, rather than use the material itself.
Regardless of how brokerage firms are set up, most have some variation of the following positions: trader, transportation consultant, accounting/finance staff, and administrative staff.
The heart of any brokerage operation is the trader, the person who handles the transactions. In small firms, the trader may perform many other functions. In large firms, traders may specialize by customer or commodity type or territory.
One of the support staff members who works most closely with the trader is the transportation expert. He arranges for the physical movement of materials and checks on the progress of the shipment--making the pickup and delivery appointments, gathering the shipping data, and accumulating the receiving data. He may also check on freight rates, tariffs, and other shipping methods.
The accounting/financing staff member usually makes credit arrangements with the seller and requests credit information from the buyer. He also ensures the gathering of documents needed to issue invoices to the buyer and make payments to the seller. When advances are made to the seller or additional terms are granted to the buyer, this person usually is involved in tracking the transaction.
The administrative staff is charged with the day-to-day functions that come with running a business.
Beneficial to You?
Many firms use brokers exclusively for their sales or purchases. Other firms use a broker to supplement sales or purchasing efforts. An individual firm must decide whether to spend the time, energy, and money to perform buying and selling functions internally, or to use a broker to assist in these functions--thereby leaving more time, energy, and money available for other activities.
Most firms tend to take the middle road. They find it to their advantage to maintain their own marketing and purchasing departments, using brokerage firms for supplementary service. Your best course of action is to evaluate your particular needs and determine whether a broker can help meet them most efficiently.
The Nonferrous Broker
By Stanton A. Moss
A nonferrous metal broker is as different from his counterpart on the ferrous side as night is from day. The nonferrous metal broker or merchant wears many hats. In one transaction, he may buy copper scrap for conversion into copper cathode or wire bar; in the next, he may purchase aluminum scrap to swap for primary ingot to be shipped to an extruder for casting into aluminum billet. He then may buy a trailerload of remelt zinc sows to be shipped to a zinc dust manufacturer--all this before his second cup of coffee. To be successful, the nonferrous metal broker or merchant must know markets and values of many different metals and arrange for homes for these different metals. In his "merchant" capacity he is purchasing for his own account and having the scrap processed to change its form and value.
What makes the nonferrous broker unique is that the value of the product he is handling can fluctuate by the minute. Quotes for copper on the New York Commodity Exchange can change constantly; the broker must make it clear to his customer that the quote he gives is for immediate acceptance. In the past, time has not been that critical when dealing with aluminum; a quote could be good for a period of time. Today, with the changes in the complexion of the market and in the type of aluminum scrap consumer, the details must be spelled out to prevent any misunderstandings. This has opened up many new opportunities for aluminum swap and conversion situations that in the past were limited to copper trading.
When comparing the activities of ferrous and nonferrous brokers, the value of the material must be taken into consideration. The value of a ton of ferrous can be $150, whereas the value of a ton of nonferrous metal can be as high as $2,000 or more. Financial exposure can mount quickly with these differences.
The trading of most nonferrous metals on a major exchange like the London Metal Exchange and the New York Commodity Exchange affords the nonferrous trader an opportunity to hedge his transaction. This does not provide full protection against market fluctuations because he cannot deliver scrap to fulfill his hedge obligation.
A nonferrous broker can be of great help to a large consumer who wants to take a position in the marketplace without upsetting the price. The consumer may commission a broker to purchase a large tonnage of material to be shipped to him, whereas if the consumer came into the market directly to purchase that tonnage the price would be driven upwards. On the other hand, a broker might be used to sell off excess inventories at attractive prices without upsetting the market price or identifying the seller.
The nonferrous metal broker has built himself a niche in the scheme of business and his longevity will depend on his own resourcefulness.
Stanton A. Moss is president of Stanton A. Moss, Inc., Bryn Mawr, Pennsylvania, and chairman of ReMA's Nonferrous Metals Committee.
The Stainless and Alloy Scrap Broker
By Arnold I. Plant
The stainless and alloy scrap broker's functions can be divided into two major groupings. First, activities between broker and consumer. As a rule of thumb, the broker and consumer meet monthly to discuss mill requirements. Based on proposed operating schedules, melt practice, inventory on the ground, and market situations, the mill purchasing department tells the broker how much of each item will be needed for the coming month's business.
Next, the broker and consumer attempt to reach an agreement on prices the mill will be willing to pay for the various grades of material wanted. Once this agreement in tonnage and price has been reached, the next step is to supply the materials at the price--while making a profit--and to make sure the scrap arrives at the consumer in a reasonably orderly manner. That is to say, all the required shipments should not be delivered in a single week, but should be spread over the contracted month.
Now, the other side of the coin. The broker purchases the scrap, doing so through phone calls, personal contacts, and just plain leg work. He keeps daily records to match purchases with sales and to match time of delivery with consumer needs. This process is ongoing. The main effort through this phase is to satisfy both processors and consumers with the price for the merchandise and with the delivery schedule.
For many years, the stainless and alloy scrap industry has run an "on-time delivery" operation, making certain its customers--the steel mills--always have the scrap they need, and as close as possible to the time they need it. This way of operating must continue. Stainless steel brokers must match the needs of their consumers to the supplying ability of their processors at a price fair and equitable for both.
Arnold I. Plant is senior vice-president at The Samuel G. Keywell Co. Plant Div., Baltimore, Maryland, and chairman of ReMA's Stainless and Alloys Committee.
The Waste Paper Broker
By William A. Nielsen
The domestic broker serves a multitude of functions in the overall marketing of waste paper. He- must know the grading quality and the type of baling press of each waste paper dealer. Because each waste paper plant processes various qualities of paper, it is essential that the broker know the extent to which the packer cleans the material. The broker also must know the type of baling system used, since paper mills sometimes require a certain quality of pack as well as certain bale sizes and forms.
The broker must also be familiar with all areas of transportation--from piggyback to over the road to railcar--in order to determine the lowest possible rate to destination.
Because the broker is taking a financial risk on behalf of the waste paper packer, he should be familiar with the financial condition of his consumers. The broker solicits as many different mills as possible to try to obtain for the waste paper dealer the best prices for the quality being packed. Moving material consistently is key to maintaining a long-term relationship with a waste paper dealer.
The broker must be extremely familiar with the types of machinery the paper mill has, so he doesn't send the mill any material that could be rejected, be downgraded, or cause damage to the paper machine.
Expertise in all of these areas is essential to the export broker, too. But, in addition to knowing all of the requirements of domestic business, he must be an expert in these international matters:
Ocean transportation. The export broker must follow ocean freight rates, container availability, and vessel sailing schedules closely in order to provide a smooth journey for the paper tonnage.
International banking. Since most business is done on open account or letter of credit, the broker must be familiar with the documentation and banking regulations required for each country in order to ensure his payment and eliminate delays.
Export markets. The broker must watch prices in different countries weekly to determine whether fluctuations may disrupt other countries' markets. For example, if the waste paper price in Europe decreases, it could have an obvious effect on the price paid to the U.S. waste paper exporter.
Special quality concerns. As with the domestic broker, the export broker must know the quality of the material being shipped from each waste paper dealer to avoid any problems or claims. These problems and claims usually occur 60 to 90 days after the dealer has shipped the goods because of the lengthy transportation times on vessels.
By using a broker, a waste paper dealer can benefit from continuity in movement of goods and prompt payments. In addition, the dealer can take advantage of the broker's knowledge of domestic and export markets, eliminating the extremely time-consuming task of searching out new markets himself.
William A. Nielsen is executive vice-president of Nielsen & Nielsen, Inc., Pomona, California, and first vice-president of ReMA's Paper Stock Institute.
The domestic broker serves a multitude of functions in the overall marketing of waste paper. He- must know the grading quality and the type of baling press of each waste paper dealer. Because each waste paper plant processes various qualities of paper, it is essential that the broker know the extent to which the packer cleans the material. The broker also must know the type of baling system used, since paper mills sometimes require a certain quality of pack as well as certain bale sizes and forms.
The broker must also be familiar with all areas of transportation--from piggyback to over the road to railcar--in order to determine the lowest possible rate to destination.
Because the broker is taking a financial risk on behalf of the waste paper packer, he should be familiar with the financial condition of his consumers. The broker solicits as many different mills as possible to try to obtain for the waste paper dealer the best prices for the quality being packed. Moving material consistently is key to maintaining a long-term relationship with a waste paper dealer.
The broker must be extremely familiar with the types of machinery the paper mill has, so he doesn't send the mill any material that could be rejected, be downgraded, or cause damage to the paper machine.
Expertise in all of these areas is essential to the export broker, too. But, in addition to knowing all of the requirements of domestic business, he must be an expert in these international matters:
Ocean transportation. The export broker must follow ocean freight rates, container availability, and vessel sailing schedules closely in order to provide a smooth journey for the paper tonnage.
International banking. Since most business is done on open account or letter of credit, the broker must be familiar with the documentation and banking regulations required for each country in order to ensure his payment and eliminate delays.
Export markets. The broker must watch prices in different countries weekly to determine whether fluctuations may disrupt other countries' markets. For example, if the waste paper price in Europe decreases, it could have an obvious effect on the price paid to the U.S. waste paper exporter.
Special quality concerns. As with the domestic broker, the export broker must know the quality of the material being shipped from each waste paper dealer to avoid any problems or claims. These problems and claims usually occur 60 to 90 days after the dealer has shipped the goods because of the lengthy transportation times on vessels.
By using a broker, a waste paper dealer can benefit from continuity in movement of goods and prompt payments. In addition, the dealer can take advantage of the broker's knowledge of domestic and export markets, eliminating the extremely time-consuming task of searching out new markets himself.
William A. Nielsen is executive vice-president of Nielsen & Nielsen, Inc., Pomona, California, and first vice-president of ReMA's Paper Stock Institute.
Break open a broker and here's what you'll find: someone part seller, part buyer, part market watcher, and more. Here's how this professional functions.