Scrap's Market Story

In the fifth installment of our year-long series, we look at how scrap materials, suppliers, consumers, competitors, and more have changed over the years.

BY KENT KISER

Kent Kiser is associate editor of Scrap Processing and Recycling.

The universe of commodities the U.S. scrap industry has handled over the years encompasses just about every type of ferrous, nonferrous, and nonmetallic material known to humankind—that is, anything that could have value if put to new use and could, thus, be sold. Of course, that universe has evolved and expanded with time, as market shifts, technological developments, and—more recently—political influences have prompted additions to and deletions from the list.

Other scrap market factors have likewise changed, including where scrap is found, how it is marketed, and who is competing for it. And this constant transformation isn't likely to stop anytime soon. After all, the market forces on the scrap industry are merely a reflection of the forces on the world as a whole, and the world isn't about to stop turning.

From Bones to Plastics

America's earliest recyclers were predominantly generalists, founding their fledgling businesses on a potpourri of scrap materials, from iron and steel to copper, brass, pewter, lead, nickel, tin, and zinc, to a host of nonmetallic items such as paper, glass, rubber, burlap, rope, beeswax, textiles, bones, leather, hides, furs, and even human and animal hair.

As America's industrial revolution brought new technological advances in the early- to mid-1900s, many recyclers began phasing out the more "primitive" scrap items, such as bones, while adding precious metals and newly popular materials such as aluminum, stainless steel, and "high-tech" metals—high-speed steel, monel, inconel, nickel-chrome alloys, cobalt alloys, bismuth alloys, tungsten, molybdenum, tantalum, and cadmium. With new commodities to process and recycle, some also began to specialize in certain types of scrap—a trend that has increased in many instances throughout the decades.

The roster was further expanded in the 1950s and early 1960s, as the United States entered the jet and space age, and a new class of "exotic" metals—including boron, columbium, titanium, and vanadium—hit the scrap scene in the form of all kinds of high-temperature alloys. "A new alloy is introduced nearly every week—and sometimes more frequently—to perform some specialized task," stated one recycler in a 1961 Scrap Age. "Whatever the gyrations in the American economy, the scrap industry will be handling larger proportions of alloy scrap." The 1960s also saw the nation leap into the electronic and computer era, which generated not only a stream of low-grade scrap items containing precious metals such as silver, gold, and palladium, but also a new grade of scrap paper: computer printout.

Throughout the 1970s and 1980s, recyclers continued to expand their scrap scope to include old commodities in new forms, such as all-aluminum used beverage cans (UBCs), which one broker calls "the biggest item recycled today." And with the advent of automotive catalytic converters in the mid-1970s, other opportunities arose to recycle the platinum-group metals—platinum, palladium, and rhodium.

In more recent years, some new—and primarily municipally collected—materials have been added to the scrap list, including plastic bottles, glass containers, steel cans, old magazines, telephone books, and scrap tires. Ironically, many of these items were recycled in previous decades, especially during wartime, but they faded from the market for years until the recent waste disposal crisis and public clamor to recycle brought them out of semiretirement.

Thus, today's recognized list of scrap commodities is broader than ever, as can be seen by comparing the 1993 scrap specifications published by the Institute of Scrap Recycling Industries (ISRI) (Washington, D.C.) with those distributed in 1938 by the National Association of Waste Material Dealers (NAWMD), an ReMA predecessor. The listings for nonferrous scrap have risen dramatically from 35 to 128 grades, thanks to additions such as UBCs and other aluminum products, magnesium, nickel alloys, and stainless steels. Specifications for paper have increased from 24 to 51 grades—plus another 33 specialty papers that are listed without specific guidelines—due to more-detailed distinctions in existing grades and the emergence of new grades, including office paper and polycoated stock.

Interestingly, the number of ferrous scrap classifications has decreased since NAWMD's 1938 list from 124 to 112, partially the result of changes in steelmaking technology—and, thus, scrap requirements—and the discontinuance of some steel products. Even so, new ferrous classifications have been added throughout the years, most notably shredded scrap. The NAWMD publication also lists 35 grades of scrap rubber as well as dozens of types of rags, wiping cloths, bagging, hosiery, and twine. While ReMA's circular no longer covers these materials, new rubber specs are expected to be added in 1994 along with those for furnace-ready glass—a new commodity for the circular. Already, ReMA's guidelines include specifications for 27 types of scrap plastics and an identification checklist for precious metal-bearing scrap, neither of which appeared on the 1938 list in any form.

Will the universe of scrap materials continue to expand? Weighing in on the yes side is the fact that manufacturers will continue to develop new and modify existing materials, while government at all levels and the public will continue to push to recycle previously disposed materials, which could create new opportunities for recyclers. Some scrap firms are already exploring the recycling potential of such novel items as milk cartons, household batteries, fluorescent fixtures, oil filters, and nuclear and low-level radioactive metal.

On the other hand, the scrap material list could shrink for several reasons: Some items may become too costly to handle in the future due to government regulations and potential environmental liability, others may disappear due to replacement or changes in manufacturing, while still others may go begging for lack of consuming markets.

Getting to the Source

Just as the roster of scrap materials has evolved over time, so have the available scrap supplies as well as the sources of scrap. In recent years, these supply-side changes have stemmed primarily from some easily identifiable market trends.

On the macroeconomic level, the U.S. industrial base is reportedly contracting as the nation leans toward an information- and service-based economy. And as industry shrinks, the scrap generated by manufacturers also shrinks, which means there's less prompt material available to recyclers.

On top of that, manufacturers have also been improving their production processes in an effort to generate less scrap and, hence, reduce costs. As one copper wire manufacturer stated flatly in 1992, "We look to zero-percent scrap as an objective of quality."

In another trend, some manufacturers have been steadily reducing the amount of certain materials used in their products or phasing them out entirely for cost-cutting and product performance reasons. Take precious metal consumers, for example, who are already using less silver, gold, and palladium in their electronic circuit boards. This trend can also be seen in ongoing efforts to develop a silverless photographic film and a platinum-free catalytic converter. And who can overlook the increasing use of aluminum and plastics in automobiles at the expense of steel. This type of material substitution and reduction will certainly continue and could further diminish supplies of both prompt and obsolete scrap of some commodities.

In the future, the supply of some industrial scrap in the United States could be affected by what's known as international sourcing. In this scenario, nations promise to buy certain U.S. products, but only if some or all of the products are made in those countries. This type of trade-off draws manufacturing capacity—and, thus, scrap supplies—away from the domestic market. "As a result, you'll see a lot of what was once an all-American-made product becoming an internationally sourced product," says Joseph R. Jiampietro, president of Aeromet Inc. (Utica, N.Y.).

As the industrial supply of some scrap materials has shrunk, recyclers have had to compete more aggressively for available supplies and find new, nonindustrial scrap sources. Paper recyclers, for one, have begun "mining" old newspapers and old corrugated containers from previously untapped sources such as hotel and motel chains, businesses, airlines, train stations, and bus depots. Likewise, other recyclers have begun drawing material from such diverse sources as municipal incinerators (see "Out of the Flames," beginning on page 57), national and state parks, home-improvement retail stores, theme parks, and even prisons.

Municipal curbside and office collection programs—and, hence, waste haulers—have also become significant new scrap sources. Paper recyclers, for instance, used to get most of their newspaper supplies from peddlers and paper drives sponsored by charitable organizations, but nowadays they are more likely to work with waste haulers and municipal drop-off centers to get the scrap.

Scrap in the Quality Age

The ways that scrap is processed have also changed over the decades, prompted in part by advances in processing equipment such as development of wire chopping systems and shredders. Such machines have enabled recyclers to produce entirely new grades of scrap out of traditional materials.

In addition, while the goal of processing has long remained the same—to prepare scrap to meet consumer demands—the demands themselves have become more stringent. "The quality movement has been the most significant development in our industry in recent years," says Marty Forman, president of Forman Metal Co. (Milwaukee). "Your ability to meet very tight specs is what determines your ability to survive nowadays. Consumers don't want to buy junk. They're buying a feedstock that has to perform."

As part of this effort, many consumers have been requiring recyclers to implement statistical process controls in their operations and provide data to prove that their materials meet the required quality specifications. For some recyclers, this can mean guaranteeing scrap purity in parts per million. "Consumers will be increasingly demanding better quality scrap with less and less residual and trace elements, to the point where there must be no contamination whatsoever," Jiampietro says. And what do recyclers get for meeting these new quality standards? They get to continue doing business with their quality-conscious consumers. As one scrap recycling firm chairman observes, "You won't be in business tomorrow unless you ship quality scrap today."

These demands, coupled with consumers' expectations of better service, have also changed the ways some processors package and deliver their material. It's not unusual, for example, for some recyclers to provide scrap in premixed charges that meet the exact specifications of a particular consumer. "We can tailor an entire heat so that all the consumer has to do is put the scrap into its furnace," says one nickel-alloy executive.

Consuming Considerations

As for who consumes scrap, there's been a definite evolution over the years, representing positive as well as negative effects on recyclers. On the plus side are changes such as the growth in scrap-fed, electric-arc-furnace steel minimills, the emergence of aluminum minimills, and the expansion in paper deinking capacity. Also, as scrap firms explore opportunities in other nonmetallic recyclables, they could access a new world of consumers. On the other hand, there's been a similar steady decline in the number of secondary aluminum, brass and bronze, lead, and zinc smelters. "The whole nonferrous industry has been decimated as far as numbers go," says one Midwest recycler.

The geographic location of some scrap consumers has also changed, which has brought about "a tremendous change in the way some scrap is flowing today," one industry expert says. This can perhaps best be seen in the thinning of nonferrous consumers in the so-called Connecticut Valley/Northeast Copper Belt, where many consuming companies have either shuttered their operations or relocated to more hospitable regions of the country.

When it comes to the actual buying and selling side of the business, nonferrous recyclers have seen a shift away from a producer-price system to a market guided by the worldwide commodity exchanges, specifically the London Metal Exchange (London) for aluminum, copper, lead, nickel, tin, and zinc; the Commodity Exchange Inc. (COMEX) (New York City) for copper, aluminum, silver, and gold; and the New York Mercantile Exchange (New York City) for platinum and palladium. These exchanges—which deal in primary metals as well as secondary aluminum alloys, but not scrap—give scrap processors and consumers a measuring stick against which to base the buying and selling prices for scrap on a minute-by-minute basis. While most nonferrous processors look to these exchanges only for price guidance, in most instances setting their prices at a "deduct" to the exchange price (on rare occasions, bare bright copper scrap has sold at a premium to COMEX spot copper), some use the exchanges to lock in a forward price for the sale of material, hedge their inventory, or for purely speculative purposes. In any case, "all nonferrous recyclers have to run their businesses in relation to the commodity exchanges today," says one executive, who adds that "the exchanges have increased volatility in the market, which is sometimes good and sometimes detrimental."

Ferrous market participants got a taste of their own contract when the Chicago Mercantile Exchange (Chicago) established a short-lived ferrous scrap contract in the 1950s. Today, however, there are no comparable exchanges to direct ferrous and paper scrap prices, though the Chicago Board of Trade (Chicago) has been attempting to establish a futures market for ferrous scrap, as well as a cash market for other scrap commodities such as paper, plastics, and glass. Until then, at least, recyclers of these materials will continue to buy their scrap primarily based on personal market experience, regional demand, their relationship with the supplier, and quotes offered in industry publications. On the selling side, steel and paper mills still largely determine prices, further supporting the adage that scrap is bought, not sold.

Still, there have been some changes in how ferrous scrap is priced and sold. Traditionally, for example, the bid prices for No. 1 auto factory bundles have been the standard on which prices for other ferrous scrap were based. Most automakers, however, have dropped out of the monthly No. 1 bundle auctions, instead contracting directly with processors to handle all scrap generated at a given plant. If this trend continues, recyclers will have to find another "bellwether" price or look for other indicators of proper selling prices. Some industry observers note that the No. 1 heavy-melting scrap composite price, as listed in Iron Age and the American Metal Market, is the current price guidepost for ferrous scrap.

Meeting the Competition

Scrap recyclers are used to having to weather tough times and compete for material, but in recent years they have had to adapt to unprecedented challenges from two sources: government and waste haulers.

Municipal governments, for one, have disrupted the markets of some scrap materials through their curbside "recycling" programs by collecting some items with apparent disregard for whether demand can support the collected supplies. More ominous are current efforts by some municipalities to establish flow control laws that would dictate who can collect and market recyclable materials—including scrap—generated within the municipality. "Municipalities are beginning to look at the excruciating costs to recycle certain postconsumer materials, and the result is that they may want to become involved in the more profitable areas of scrap recycling," Forman says. "Such proposals could put traditional recyclers in the poorhouse."

Meanwhile, some state governments have already passed or are considering passing bans on the landfilling of some materials, such as scrap tires and used oil filters, and these bans could be extended to cover other difficult-to-dispose materials and perhaps require their recovery through recycling. Such requirements would be negative in that they could direct more material into already-oversupplied scrap markets, but they would be positive in that they would maximize recovery of some materials and perhaps create new sources and opportunities for scrap recyclers.

As for the federal government, Superfund, the Resource Conservation and Recovery Act (RCRA), and other environmental laws have made handling certain scrap materials—such as lead-acid batteries—extremely worrisome and potentially devastating financially, prompting some recyclers to stop accepting such materials. In addition, recyclers continue to labor under the burden of having their scrap commodities deemed "waste" under current RCRA language.

Meanwhile, waste haulers pose a different challenge as they position themselves to become more-direct competitors for materials and markets with scrap recyclers. In recent years, waste haulers have been rapidly building material recovery facilities (MRFs) in which they process and market not only residential items such as glass containers, plastic bottles, and steel cans, but also some mainstream scrap materials, such as newspapers, corrugated board, and aluminum cans. To meet the threat posed by waste haulers, some scrap companies have begun handling household recyclables, started forging recycling ties with municipalities, and, in some cases, even established their own MRFs.

On another competitive front, some scrap consumers have even turned the tables on their scrap suppliers by establishing their own scrap divisions, which enable the consumers to control their scrap needs and, thus, reportedly reduce their raw material costs and become more competitive. Some steel mills, for instance, have established their own on-site processing facilities, complete with shredding equipment.

On the material level, some scrap commodities are facing competition from alternative materials. In the most prevalent case, steel scrap continues to be challenged by direct-reduced iron, iron carbide, and hot-briquetted iron, though most on the consuming and processing ends see these materials as complements, not competitors, to scrap.

These challenges mean that recyclers must be vigilant in protecting their existing markets, yet flexible enough to adapt to and capture new scrap opportunities. "The scrap industry has to be like a tennis player waiting to receive a serve," says Forman. "The player is continually jumping from one foot to another, so he's already in motion and ready to react to something that's going to happen quickly. That must be the status quo readiness for scrap recyclers." •