The Scrap Industry in Profile: Expansion or Retrenchment?

Results of ISRI’s 1988 Business Survey

Launched in May, ISRI’s survey was designed to evaluate the capital investment climate among the nation’s recyclers. As the economy enjoyed its longest peacetime expansion in history, were spending plans for those handling scrap in step with other industries? Perhaps taking a cue from months and months of positive macroeconomic news, scrap recyclers appear quite optimistic about their future--in fact, plans call for more equipment spending than ever.

By Robert J. Garino

Robert J. Garino is director of commodities for the Institute of Scrap Recycling Industries, Washington, D.C.

The Recycling Materials Association (ISRI) launched a survey of its membership in May to find out recyclers' spending plans for the near term. In addition to asking questions concerning equipment purchases, ReMA surveyed its members about principal operations, materials handled, plant location, and number of employees. Members were also asked to comment directly on the outlook for scrap markets in 1988.

More than 275 survey forms were returned, representing an approximate 15 percent response rate, based on a current membership total of 1,860 firms. Responses came in from 43 states in the U.S. and from six other countries. The results are important indicators of how the scrap processing and recycling industry is evolving and where it may be heading.

The tables shown summarize the responses from ReMA members. Simple arithmetic averages were used in tallying results for many of the questions asked. Subsequent random follow-up telephone calls to members confirmed most of the results.

 The Economy Is Growing, But What About Recycling?

The American economy was well into its 66th month of expansion when survey forms were mailed. Most of the published data available confirmed the fact that overall business conditions in the U.S. were sound. The nation's first quarter gross national product, for example, increased at an annual rate of 3.9 percent--considerably higher than anticipated. Further, industrial production was running nearly 7 percent above comparable figures for last year, and the nation's factories were operating at well over 80 percent at the start of the second quarter. The April operating rate--83 percent--was the highest recorded since November 1979.

The positive macroeconomic news did not end with the April operating rate. The March 1988 trade deficit was the lowest recorded in nearly three years. Significantly, much of that decline was attributed to a 23 percent surge in merchandise exports--not a decline in imports. With generally optimistic news being reported, it came as no surprise that total business investment was increasing at a rapid pace. The nation's businesses were expanding at a 20 percent annual rate to meet both domestic and foreign markets. Economists reported that exceptionally strong export demand was specifically causing some companies to modernize or enlarge their production capacity.

But what about the scrap industry? Are scrap processors participating in this expansion boom? What about scrap consumers/manufacturers? Is the scrap industry committing funds for the long term? ReMA's survey revealed interesting facts about its members and their investment plans for this year and next.

 ISRI Membership Profile

ISRI members are found at all points along the recycling chain--from scrap generator and scrap consumer, to processor, domestic broker, and exporter--with many firms engaged in more than one activity. Table 1 shows the survey respondees' principal business operation.

The breakdown in Table 1 closely resembles what is already known about ReMA membership. Current data on ReMA divisions, for example, reveal that 6 percent of the 1,860 members have declared themselves consumers. The survey found that 7 percent consider themselves consumers/manufacturers.

Of the many kinds of scrap materials handled by the membership, and in terms of absolute tonnages processed, the big ticket items were ferrous metals, followed by paper and nonferrous metals. Out of 14 material categories, copper and aluminum were close in their rankings of No. 3 and No. 4, respectively.

Table 2 shows how the top five materials handled ranked in 1987 and 1988.

Looking closer at the size and location of the various operations, expressed in terms of average number of employees, consumer/ manufacturers headed the list with an average of 180 employees, followed by multifaceted (91 employees); processor (49 employees); domestic broker (39 employees); and exporter/ importer (17 employees).

The employee numbers appear much higher than what are generally known about the "typical" member. This may be explained by the wide statistical range found in the number of employees at the participating firms. This would tend to make the arithmetic average, or mean, seem unusually high. For greater clarity and perspective, the ranges in employment among the six operating categories are noted as follows: processor: 4 to 650; multifaceted operations: 3 to 400; consumer/manufacturer: 7 to 1,100 domestic broker: 2 to 250; importer/exporter: 1 to 79; other: 1 to 70.

In 1984, ISIS, one of ReMA's predecessor organizations, published a survey on scrap processing capability that also provided a profile on ferrous scrap processing by regions in the U.S. The survey found that iron and steel scrap processing plants were concentrated in the East North Central and Northeastern states--the heart of scrap generation and consumption. The survey noted that approximately 50 percent of the ferrous processing plants were located in these two regions.

The 1988 survey, which included nonferrous metals as well as paper, glass, plastic, and "other," generally confirms the earlier observation. Among processors, leading states were Ohio, Pennsylvania, New York, and Illinois. The combined two regions accounted for nearly 60 percent of the total responding. These results are certainly not surprising considering that the 1988 questionnaire also included processors of virtually all kinds of waste materials, not only ferrous scrap.

Summarizing the results of the profile segment of the survey, a "typical" ReMA member firm handles ferrous metals, followed by paper, aluminum, copper, and lead. The firm operates principally as a scrap processor with slightly less than 50 employees. There's a strong probability that the firm is located in the East North Central/Northeastern U.S.

 Equipment Investment and Spending in 1987 and 1988

To better understand purchasing activity in 1987 and plans for 1988, ReMA asked members these questions: What was the cost of equipment purchased in 1987? What is the value of your equipment investment? And, do you expect your 1988 equipment purchases to be greater or smaller than in 1987? Table 3 summarizes the responses.

Most equipment purchases in 1987 fell in the under-$250,000 column. Only a few companies spent more than $10 million. The distribution was greatest among the consumer/manufacturer category.

Processors headed the list in terms of absolute dollar value of equipment investment (see Table 4). However, when expressed as an average dollar figure (total dollar value divided by number of responding firms), the consumer/manufacturers were far and away the most capital-intensive group, averaging a $9.2 million investment per plant compared with a $2.1 million average investment for the processors or $3.5 million for the multifaceted operations.

The most capital-intensive group--consumer/manufacturer--was also the most optimistic in terms of 1988 spending plans.

Approximately 53 percent noted that they planned to spend more this year compared with last. Only 16 percent believed that their spending would show a decline, while 32 percent said that spending in 1988 would be the same as last year.

Scrap processors were next highest in their rating of increased capital spending in 1988--49 percent thought they would spend more, while 32 percent believed less spending was in order. Approximately 20 percent said that spending would be the same or show no change over 1987.

Thus, while most responses were generally optimistic, the multifaceted plants appeared most reserved in their outlook: only 39 percent believed that spending would be higher in 1988, while 48 percent said it would show no change or be the same compared with last year. Perhaps their diversity may have some bearing on their apparent conservative approach to capital investment in 1988.

 Who’s Buying What?

What kinds of equipment were purchased in 1987? Consumers were quite specific in their responses, covering a myriad of products. As a group, however, processors were the most diverse in their response: cranes, trucks, shears, and new buildings were highlighted. The most popular items listed were cranes, followed by trucks, forklifts, shears, balers, and trailers. A similar pattern emerged when asked about 1988 purchases. Again, cranes headed the list, with trucks, balers, shears, loaders, and forklifts specified by members in their 1988 purchasing plans.

In terms of dollars spent last year, the average amount invested in equipment by consumer/manufacturers ($9.2 million) was considerably higher than the amount invested by processors ($3.5 million). For consumer/manufacturers, furnace purchases dominated 1987 spending; but in 1988, this group plans to invest in furnaces, forklifts, shredders, and tractors.

Multifaceted operations were buyers of forklifts, balers, trucks, trailers, and cranes as well as loaders, shredders, and tractors. This year, these same facilities are looking to purchase balers, cranes, forklifts, shears, and furnaces.

 EPA-OSHA Influence Appears Minimal

Environmental concerns will prompt some capital improvements in 1988, according to survey responses. Members were asked whether, as a result of environmental concerns, they made, or anticipate making in 1988, any of these capital improvements to their facilities: paving; roofing; oil retention/ collection systems; storm water retention/collection systems; excavation/removal of contaminated soil; radiation detectors; and general housecleaning.

Among processors, "paving of operating areas" received slightly more yeas than nays (67 to 65). In fact, paving was also most often cited by the consumer/manufacturer and multifaceted operations. Significantly, in all other areas noted in the question, processors, multifaceted plants and consumer/manufacturers answered with more nos than yeses.

In a related question that asked members to specify the equipment they had to invest in during 1987 as a result of environmental regulations, again, no single item stood out. Responses included everything from purchasing radiation detectors, to installing afterburners and baghouses, to installing fences and planting trees.

The vast majority of those responding said that no specific equipment was invested in as a result of recent EPA or OSHA actions or regulations. Those that did list equipment noted radiation detectors, baghouses, respirators, dust collectors, and monitors.

 Computer Spending/Usage Up

Computer usage is becoming more important to the scrap industry. Over 65 percent of the processors, 84 percent of consumer/manufacturers, 81 percent of the multifaceted plants, 81 percent of importers/exporters and 75 percent of the domestic brokers currently use computers in their day-to-day operations. As indicated in Table 5, there was virtually no difference in terms of how computers are used by the scrap industry. Accounting and inventory control were ranked as No. 1 and No. 2 by all operations.

As might be expected, brokers and importer/exporters ranked accounting and inventory as No. 1 and No. 2, respectively. Also, in both categories, production was ranked No. 6.

Spending plans for 1988 clearly include computers, with 52 percent of the processors indicating that more will be added in 1988-1989; 72 percent of the consumer/manufacturers will add more computers, and 59 percent of the multifaceted plants plan to add more in 1988 and 1989.

 Higher Spending This Year and Next

Spending more for equipment in 1988 seems inevitable, according to the survey. And, judging by activity at ReMA's convention last January, and the recent Gulf Coast Chapter convention held in June, equipment manufacturers are beaming. As Norman Kramer, Mac Corp.-Saturn Shredders and chairman of the ReMA Exhibitors Group, observed, "the scrap industry is definitely anxious to expand, and processing equipment--whether new or used--is eagerly being sought."

How long will this spending fever last? No one can answer that, of course. But, in the meantime, most recyclers are confidently investing for the long haul.