May/June 2000
Though a bad case of the ‘Asian flu’ took its toll on West Coast exporters, the scrap industry along America’s Pacific Rim—California, Oregon, and Washington—seems well-positioned for the 21st century.
By Robert L. Reid
Robert L. Reid is managing editor of
Scrap.
In the early 1950s, the West Coast was seen by many scrap recyclers as “a distant country where movies were made but where there was little industry,” recalls Si Wakesberg, Scrap’s New York bureau chief and a 50-plus-year scrap industry veteran.
Of course, those were the days before the Dodgers left Brooklyn, before Los Angeles added music and television to its entertainment empire, before the success stories of Silicon Valley and Starbucks, and before California’s population grew so enormous that it alone accounts for a fifth of the electoral votes needed to pick America’s next president.
Likewise, in the past five decades, recyclers along America’s edge of the Pacific Rim—California, Oregon, and Washington—became major players in the scrap industry, especially in exports to Asia.
Last year, for instance, West Coast ports shipped almost 2 million mt of ferrous scrap, or roughly 45 percent of total U.S. ferrous exports of 4.4 million mt, according to U.S. Department of Commerce figures. Plus, the West Coast accounted for around 658,000 mt of nonferrous scrap exports (excluding lead, which the West Coast doesn’t really handle), or about 41 percent of total 1999 U.S. nonferrous scrap exports of around 1.6 million mt (excluding lead).
In addition, West Coast ports shipped more than 36 percent of all U.S. exports of recovered paper last year, according to the American Forest & Paper Association. (For more on paper exports, see “The Scrap Paper Export Story,” beginning on page 63.)
Impressive as those numbers sound, they’ve been even higher in the past, especially on the scrap metal side. Five years ago, notes one ferrous exporter, West Coast processors were shipping out as much as 2.7 million mt a year of iron and steel scrap. Now that the worst of the “Asian flu” is fading, West Coast processors seem optimistic about renewed demand overseas.
Moreover, some recyclers report that the recent downturn forced them to seek previously untapped export opportunities as well as some promising new domestic markets.
But don’t get the impression that everything’s sunshine and Rose Bowls out West. Recyclers in California, Oregon, and Washington face their share of business challenges ranging from tough environmental laws and expensive real estate to an actual mountain range—the Rockies—which can mark, symbolically at least, a nearly impenetrable barrier to buying and selling scrap.
And when was the last time a scrap recycler in Chicago or New York had to buy earthquake insurance?
By the Numbers
To get an overall picture of the scrap recycling industry on the West Coast, consider these statistics from the Department of Commerce:
In 1997, California had 265 iron and steel scrap processors and dealers, 213 recyclable paper and paperboard wholesalers, and 522 wholesalers of other recyclable materials, including nonferrous metals, glass, plastic, rubber, and oil. All told, these various facilities employed more than 13,700 persons and reported annual sales of more than $4.5 billion.
In Oregon, the numbers were 38 steel scrap facilities, 38 recyclable paper wholesalers, and 36 “other” wholesalers. Some 1,400 Oregonians were employed by these various facilities, which recorded nearly $492 million in annual sales.
Washington state was home to 37 steel scrap establishments, 48 recyclable paper wholesalers, and 80 “other” wholesalers. To “avoid disclosing data of individual companies,” the state didn’t report total sales figures and provided only a broad estimate on its overall scrap work force, ranging from 1,000 to 2,499 employees. But Washington did record more than 400 employees and $158 million in sales at its various ferrous processors.
In general, the West Coast scrap industry is focused around its four major deepwater ports—Los Angeles/Long Beach, San Francisco/Oakland, Portland, and Seattle/ Tacoma—from which bulk shipments of ferrous metal and nonferrous containers set out for Asia. San Diego is also a significant export location in certain categories (see the table on page 38 for a look at scrap exports by West Coast port), though it primarily sends material to Mexico via truck or rail.
Freight rates are what make export so attractive to West Coast processors, especially those handling nonferrous scrap that can be packed in shipping containers. The U.S. trade imbalance with Asia means that far too many of those 40-foot containers that bring Asian-manufactured CDs and clothing to the United States are going back to Asia empty.
So shippers have been offering low, low rates on the return trips—half a cent a pound from the West Coast to Asia. Compare that with 2 cents a pound to ship nonferrous material from state to state along the West Coast or 3 cents a pound or higher to reach the Midwest or South. Even bulk-loaded ferrous scrap can enjoy ocean freight rates that are a third to a half the cost of domestic transport (though the rates did rise considerably this spring due to higher fuel prices). So it’s no surprise that West Coast processors often look even farther west—all the way to the Far East—for their markets.
Ferrous Foursome
Four large firms dominate the West Coast ferrous scrap industry:
• Schnitzer Steel Industries Inc. (Portland, Ore.), which operates out of all four deepwater ports either directly or through a joint venture. A publicly traded company, Schnitzer is the fairly undisputed market leader on the West Coast, selling more than 1.2 million mt of ferrous scrap in fiscal year 1999—down from a pre-Asian flu tally of more than 1.5 million mt in fiscal 1997;
• Simsmetal America (Richmond, Calif.), the former LMC Metals and now U.S. arm of Simsmetal Ltd. (Sydney, Australia), with major ferrous operations in Richmond and Redwood City. One estimate puts Simsmetal America’s ferrous volume at about 750,000 mt annually;
• Hugo Neu-Proler Co. (Los Angeles), the West Coast operations of New York City-based Hugo Neu Corp. Half-owned by Schnitzer in a joint venture, Hugo Neu-Proler “buys and recycles more than 10 percent of the scrap metal exported from the U.S. including more than 60 percent of the total volume available in the Los Angeles area,” notes the company’s Web site. That puts its recent volume around 500,000 to 600,000 mt; and
• Pacific Coast Recycling L.L.C. (Long Beach, Calif.), formerly Hiuka America Corp. and now a joint venture run by Japan’s Mitsui & Co. Ltd. and Birmingham Steel Corp. (Birmingham, Ala.). Pacific Coast’s estimated ferrous volume is 500,000 mt annually, but the operation’s future is uncertain now that Birmingham Steel has written off its investment in the money-losing facility and says it’s “exploring alternatives” to its involvement.
In addition, there are a number of smaller ferrous processors who primarily sell scrap to western consumers, exporting a portion of their material when overseas prices are especially good. And Cincinnati-based broker David J. Joseph Co. has a strong enough position on the West Coast to be listed right beside Simsmetal America as a major competitor for material in Schnitzer’s annual report.
Overall, an estimated 40 to 45 percent of West Coast ferrous scrap is exported, with industry leader Schnitzer reporting that its own ratio leans even heavier on the international side. The major buyers of exported ferrous—listed in slightly different order by different exporters—include South Korea, Taiwan, China, Mexico, Malaysia, and Thailand. Mexico is a fairly recent buyer, one exporter notes, having gone from almost no West Coast exports a few years ago to taking roughly 341,000 mt of steel last year (of which more than half fell under the alloyed steel category).
Conversely, Japan and India used to be good markets for West Coast shippers, but no longer. India now buys most of its ferrous scrap from Europe and other sources, one exporter says, while Japan has shifted from good customer to strong competitor as it now exports considerable tonnages. Russia has also emerged recently as a major exporter of ferrous scrap.
By grade, shredded is the most-exported ferrous scrap, and it’s a category only expected to grow now that Schnitzer has added a new 122-inch supershredder in Tacoma, Wash., that will reportedly process up to 400,000 tons annually. By comparison, all West Coast exporters combined shipped out just slightly over 700,000 tons of shredded scrap last year.
Other leading exported ferrous grades include No. 1 HMS, cast iron, No. 2 HMS, and cut plate and structural. Quality is somewhat questionable, though, with one processor arguing that the West Coast doesn’t make a “real” No. 1 heavy-melt, but rather a No. 1/No. 2 mix because neither the domestic nor the export market seems to demand a premium product. Another processor familiar with both the East and West coasts agreed that the quality of western ferrous scrap is usually poorer.
A Minimum of Mills
If there’s one comment—or even complaint—common to West Coast processors, it’s that the region doesn’t have much industry. There certainly aren’t any enormous scrap generators like the stamping plants and car factories of the Midwest or consumers like the giant steel mills in the East and growing number of minimills in the South. So old vehicles, appliances, and demolition material from the vibrant construction business must provide much of the West Coast’s ferrous infeed, while a handful of minimills—several of them relatively new—form the bulk of the region’s domestic customers.
Back in the 1950s, there actually were several large steel mills in the West—including U.S. Steel, Kaiser Steel, and Bethlehem Steel plants in Southern California—but America’s changing economy and tough environmental laws, especially air quality regulations, practically wiped out that domestic market in the 1960s and 1970s, processors note.
Fortunately, that was also when Asia, especially Japan, emerged as a big consumer of West Coast scrap. But it was tough domestically. George Adams, president of Adams Steel (Anaheim, Calif.), a medium-sized ferrous processor that sells roughly 90 percent of its material to West Coast consumers, says he never sold any scrap to the U.S. Steel or Kaiser mills, but does recall helping to cut up those facilities for scrap in the late 1970s after they shut down.
And while the domestic situation remains relatively sparse, it has picked up recently. Existing mills have increased capacity by about 20 percent in the past five years, one processor estimates. And North Star Steel’s Kingman, Arizona, plant, which started up in 1996, will ultimately add another 500,000 tons of rebar and wire rod to the market.
Still, the entire state of California has just one mill that buys ferrous scrap: Tamco Steel (Rancho Cucamonga), a 450,000-ton rebar minimill jointly owned by Ameron International Corp. (Pasadena, Calif.) and Japan’s Mitsui and Tokyo Steel Manufacturing Co. In business under different names since 1957, Tamco was put up for sale last year, but the current owners later withdrew it from the market.
Elsewhere, Seattle Steel Corp. (Seattle), a former Bethlehem Steel division that had already been sold once and shut down, was bought by Birmingham Steel in 1991. Birmingham then pumped in more than $70 million in improvements to the manufacturer of about 600,000 tons annually of rebar, squares, angles, and other products.
Rocky Mountain Steel Mills (Pueblo, Colo.), the old CF&I works that went bankrupt in 1990, was acquired by Oregon Steel Mills Inc. (Portland) in 1993. The rail, rod, and bar mill then received a roughly $190- million upgrade and last year produced more than 700,000 tons of steel products. Oregon Steel’s carbon and alloy steel mill in Portland is also scrap-fed and was the first ISO 9002-certified plate mill in North America, the company says. It produced nearly 1 million tons of steel in 1999.
And in 1980, Nucor Corp. (Charlotte, N.C.) added a new scrap-fed shapes and rebar mill in Plymouth, Utah, 90 miles north of Salt Lake City. Though originally a 450,000-ton site, the facility now has three mills and produces 1 million tons a year.
However, the Asian flu also took a toll on West Coast consumers, forcing Geneva Steel Co. (Provo, Utah) into Chapter 11 bankruptcy protection in February 1999. The former U.S. Steel plant, closed in 1986 and reopened a year later by new investors, shipped more than 2 million tons of plate and sheet products in fiscal year 1998 but only half that amount in 1999.
And one minimill market previously open to the general scrap industry has now been shut. Cascades Steel Rolling Mills Inc. (McMinnville, Ore.), which was purchased by Schnitzer in 1984, has been supplied with scrap entirely from its corporate parent for about a year now, notes Gary Schnitzer, executive vice president. He estimates that the rebar, merchant bar, and rod manufacturer consumes roughly 40 percent of Schnitzer’s total ferrous production, or about 450,000 tons of scrap a year.
Though expensive freight rates generally make the Rocky Mountains the boundary beyond which most ferrous processors neither sell nor buy scrap, there are exceptions to that rule. Adams Steel, for instance, occasionally sells scrap to Chaparral Steel in Midlothian, Texas. And the Grupo Simec S.A. de C.V.’s minimill in Mexicali, Mexico, is also a potential market for West Coast firms.
Nonferrous Factors
On the nonferrous side, a few large processors again dominate specific regions, though a number of medium-sized firms exist in most major cities. In fact, one processor sees the market as ripe for consolidation because “certain areas have too many players.” The Los Angeles/Long Beach region, especially, is considered highly competitive, with major firms such as Alpert & Alpert Iron & Metal Inc. and Jack Engle & Co. in Los Angeles, plus wire-chopper Firma Inc. (part of Metal Management/the MacLeod Group) in nearby South Gate, Calif., and various others.
Farther north, Simsmetal America is the dominant player in the San Francisco Bay region through its chief nonferrous facility in San Jose. Simsmetal, which describes nonferrous recycling as “the fastest-growing segment of our business,” only strengthened that position earlier this year when it purchased its primary competitor in San Jose—Markovits & Fox. And in the Pacific Northwest, Calbag Metals Co. (Portland, Ore.) is considered the dominant firm by far.
Nonferrous processing numbers are tightly held on the West Coast, with few reliable statistics available. About as far as one major exporter would go was to differentiate large players—those that ship 200 or more containers a month—from medium-sized firms that only export 50 to 100 containers. However, Jim Mejia, president of the MacLeod Group, did estimate the West Coast wire-chopping industry at somewhere between 12 million and 15 million pounds of copper a month.
Sources of nonferrous scrap on the West Coast range from the high-tech industries in Northern California and the Pacific Northwest, plus aircraft manufacturing scrap from Seattle-based Boeing Co., to industrial accounts such as machine shops and construction projects, largely in heavily populated Southern California.
In addition, the Rocky Mountains don’t necessarily form as unbreachable a barrier for nonferrous as for ferrous. For one thing, companies across the continent compete for Boeing’s aluminum, copper, and other material. Likewise, one major West Coast processor reports drawing scrap from as far afield as Florida and Minnesota, while another can reach into the Carolinas.
“If there’s a major consumer in the Midwest who offers only a lackluster price and weak demand,” explains another processor, “but someone overseas has a very strong price with a strong demand, then it does pay to transport material to the coast and export it.”
The MacLeod Group’s association with Metal Management enables it to draw material from its sister operations across the country, which can be delivered in Metal Management’s own railcars. The MacLeod Group has processed material from as far away as Alabama and the Carolinas, explains Mejia.
Shifting Demands
The “large majority” of nonferrous scrap handled by major West Coast processors goes to export, sources indicate. The MacLeod Group, for instance, was recently shipping as much as 80 percent of its material to Pacific Rim countries, though the wire chopper has since diversified to build up its domestic market to roughly 40 percent of production.
Last year, alloy steel was by far the West Coast’s leading nonferrous export, at roughly twice the volume as aluminum (260,000 mt compared with 131,000 mt). Next was stainless and “other copper alloy,” followed by refined copper, copper-zinc base, zinc, nickel, and brass.
UBCs used to be exported in large numbers, mainly to Japan, processors note. But in recent years UBCs and other aluminum scrap have increasingly gone to domestic consumers. Over the last 20 years, aluminum exports have fallen in half, estimates Alan Alpert, president of Alpert & Alpert.
Other shifts in scrap appetite are also under way, processors note. South Korea invested heavily in upgrading its capacities and so gradually took over Japan’s place as a major market for copper and stainless steel. Meanwhile, China—a “nonentity” for exports 10 years ago—is taking over the role Taiwan used to play in buying low-grade nonferrous. Labor-rich China, for instance, will accept unprocessed insulated wire, while Taiwan, Korea, and Japan require cleaner, higher-grade material, explains John Chen, executive vice president of Tung Tai Trading Corp. (Burlingame, Calif.).
China is also the only market that’s both “hungry” for computer/electronics scrap and has cheap enough labor to make such processing cost-effective, Chen notes.
China, in fact, is so hungry for scrap that it has sent buyers to all the major cities along the West Coast, from Southern California up to Vancouver, British Columbia. As a result, one processor says, medium-sized firms that used to work through trading companies or larger processors can now sell direct. (For more on Sino-scrap relations, see “Dealing With the Dragon,” beginning on page 77.)
By contrast, South Korea only buys stainless steel in amounts of 1,000 tons or more—so smaller firms must work through a handful of large brokers such as Calbag or Keywell L.L.C.’s western offices.
Unlike West Coast ferrous, the nonferrous scrap shipped across the Pacific excels in quality, one exporter notes, which has actually helped undercut U.S. exports.
“Western U.S. scrap was the best,” explains Freddy Cohen, vice president of Alpert & Alpert. “It commanded a premium even over East Coast [nonferrous] scrap.”
But in the last few years, the rest of the world closed that quality gap, Cohen says, and so Asian consumers are increasingly buying less-expensive scrap from the Middle East, Europe, Russia, and other exporters ahead of the West Coast’s premium products.
Closer to Home
Secondary aluminum smelters within economical reach of West Coast processors include mostly California establishments: Vista Metals Corp., owned by Alpert & Alpert, plus Timco/Tandem, both in Fontana, Calif.; Alloy Metals Inc. and Thorack Metals Inc., both in Los Angeles; Custom Alloy Light Metals (City of Industry); Custom Alloy Scrap Sales (Oakland); Liston Aluminum (Corona); Tri-Alloys Inc. (Montclair); and the recently formed Adelanto Aluminum (Adelanto), owned by Los Angeles Scrap Iron & Metal.
Outside the Golden State are IMCO Recycling Inc.’s facilities in Post Falls, Idaho, and Wendover, Utah; Rypac Aluminium Recycling Ltd. (Surrey, British Columbia); and Northwest Deox Products Co. L.L.C. (Portland, Ore.), which recently set up shop in part of what used to be Calbag’s defunct Columbia Aluminum Recycling Co. L.L.C. operation.
In addition, domestic consumers take various materials that aren’t exported. One processor, for instance, sends a million pounds a month of turnings to seven different consumers in the Los Angeles area, as well as segregated alloys to the L.A. plant of Kaiser Aluminum Corp. Meanwhile, when the MacLeod Group wanted to increase domestic sales, the wire chopper found new markets in the copper mining and boat maintenance industries.
Other nearby consumers include Sierra Aluminum Co. Inc. in Riverside, Calif., Kentucky-based Commonwealth Industries Inc.’s California plants, and Alcoa’s Pimalco subsidiary in Chandler, Ariz.
Bright or Cloudy Future?
In 1983, a trade newspaper argued that West Coast scrap shippers were able to weather bad economic times better than East Coast or Gulf Coast firms. But that wasn’t the case with the recent Asian flu, processors note. While some nonferrous sources report little drop-off in Asian demand, the ferrous world was hit hard. Schnitzer’s annual report is a case in point: In 1999, the company’s volume of ferrous scrap sold fell to a four-year low, while the value of that material was cut in half, from $205.8 million for roughly the same tonnage in 1995 to $101.7 million last year.
Asian demand is now improving, shippers note, and there seems to be cautious optimism about future markets. But other issues cloud the West Coast scrap industry like a smoggy day in L.A.
What will happen to Pacific Coast Recycling, one of the leading ferrous exporters?
Will there be more mergers like Simsmetal America and Markovits & Fox?
Will the region’s expensive real estate—with rates of $69 a square foot and higher for industrial property in major West Coast cities compared with $49 in Chicago and $55 in Atlanta, according to real estate analysts COMPS.COM Inc.—encourage more and more processors to sell their facilities to developers (as is reportedly already happening)?
And what about environmental regulations? California is well-known for its tough take on pollution that prevents Golden State processors from using ISRI’s storm water plan. Plus, the overall tighter rules add as much as $2 a ton to shredding costs, one ferrous processor notes, and at least a penny a pound for chopping wire, explains the MacLeod Group’s Mejia.
And it’s not just the government keeping an environmental eye on the scrap industry. Private organizations in California can also file lawsuits against suspected polluters. No wonder companies like the MacLeod Group proactively invested more than $3 million in a plastic recycling system to avoid landfill costs and the problems related to PVC insulation.
Still, the last 50 years have taken the West Coast scrap industry from relative obscurity to its present status as an exporting powerhouse. Predictions that the 21st century will “belong” to the Pacific Rim, and other indicators, mostly point to more prosperous years ahead.
Besides, the West Coast is still the place where movies are made. So clearly this story can only end with that old serial tagline: “To be continued ... ” •
Though a bad case of the ‘Asian flu’ took its toll on West Coast exporters, the scrap industry along America’s Pacific Rim—California, Oregon, and Washington—seems well-positioned for the 21st century.