September/October 1993
Traditional recycling it ain't, but handling usables may offer recyclers a relatively low-cost, low-risk opportunity to profitably diversify.
BY SI WAKESBERG
Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.
Sometimes, the best way to recycle is to not recycle.
That's the idea behind handling usables—material that fetches a greater-than-scrap value when it's bumped out of the recycling loop and into a market that can use the material as is, in its unprocessed form. "It's the ultimate upgrade," explains William A. Gouveia, vice president of Atlantic Stainless Co. Inc. (North Attleboro, Mass.). "Every scrap dealer should be handling usables."
Most, in fact, do—or, actually, almost do. According to the experts, usables are frequently tucked away in the large volumes of scrap that flow through today's recycling facilities, just waiting to be recognized. For some materials, they may even be shipped to scrap plants in segregated lots. The hitch is that, in many (some might even say most) instances, they aren't recognized and are thus processed with other scrap, their usable value lost forever.
What's a Usable?
The key to taking advantage of opportunities in usables, therefore, is identifying what's usable in a load of scrap—and that's no simple feat since there are no hard-and-fast rules for identifying usables. An experienced usables entrepreneur puts it this way: "One learns to distinguish usables over time, with experience, just as one learns to distinguish the different grades of scrap." Complicating the identification process is the fact that the number and variety of "scrap" materials that might qualify as usables is really only limited by one's ability to find the right buyer within a geographic range small enough to make shipping what are typically small lots of usables worthwhile.
Still, there are common scrap sources of usable materials, so keeping a close eye of loads from these sources is an important step in learning to recognize usables. Metal finishers, for instance, are likely to scrap sheets that have been surface scratched or otherwise damaged from a strictly cosmetic standpoint, though the sheets could still be usable for many structural purposes. Machine shops can be good sources of usable bars, and freight carriers are frequently looking for buyers of sometimes large quantities of "homeless" nonmetallic items—from burlap bags to specialty papers—they've been stuck with.
Besides common sources, there are certain common items found in scrap that typically have good usable potential, including the following examples:
- Aluminum sheet, plate, coils, channels, angles, and some types of extrusions;
- Copper and brass condenser and admiralty tubes and redraw material;
- Iron and steel pipe, plate, and relaying rail;
- Paper rolls (especially specialty converting papers) and corrugated boxes; and
- Stainless steel round bars, flat bars, angles, sheet, plate, and tubing.
Return on the Usables Investment
Although it's not always easy to recognize these items as usables, the payoff can be worth the extra effort, say those who have diversified into the usables business. "Usables bring a good percentage more than the scrap price when you sell," maintains Gerald M. Cohen, president of Atlantic Stainless. Not only are the materials typically worth more to the industry that can put them to new use than they are to a mill or foundry seeking scrap feedstock, but, because they need almost no handling other than putting them on truck, the labor and equipment expenditures required to handle usables can be minimal. Furthermore, Cohen, notes, the buyer will frequently pay freight costs.
Nevertheless, William Kipnis, president of Mandel Metals Inc.'s Surplus Aluminum Division (Franklin Park, Ill.), cautions would-be usables handlers that these materials, like their scrap brethren, can suffer from commodity price squeezes, thereby narrowing margins.
Still, usables typically do have more room for profitability than most scrap grades, which can more than compensate for what's perhaps the biggest financial burden to handling usables: the cost of holding inventory. While they're typically found in relatively small volumes and can be had at scrap buying prices, some materials with narrow potential markets are trickier to unload than others and thus may need to be carried in inventory for extended periods of time until the right high-value market can be located.
One example, says Albert J. Wein, president of Wein Metals Inc. (Pittsburgh), is stainless usables, which he calls "extremely specialized," noting, "You don't find customers that easily." Rocky Adams, manager of Commercial Metal Co.'s Liberty Division (Dallas), adds, "You sometimes have to hold the material for a long period before the right customer comes along. Where we might, in scrap, have complete turnover once a month, in usables the turnover could be once in six months." Usables aren't constant selling items, agrees Lester Gordon, president of Gordon Brothers Iron & Metal Co. (Chicago). "You have to have lots of patience."
A Different Way Of Doing Business
Patience alone, of course, won't find buyers. Most usables experts emphasize that, given the fact that usables by their very nature face a narrower, more specialized and localized universe of potential buyers than scrap, selling usables is conceptually different from selling scrap. William Kipnis, president of Mandel Metals Inc.'s Surplus Aluminum Division (Franklin Park, Ill.), simply puts it this way: "We buy scrap. We market usables."
Adams agrees that the selling or merchandising perspective demanded by the usables business is very different from marketing scrap. In fact, he notes that at his plant usable steel sales are treated as a retail business operation that even accepts credit cards for payment.
Marketing usables doesn't necessarily mean selling to the public out of your facility, however. Many scrap firms operate separate divisions that seek out usable materials from other scrap firms, offering them a ready market that reduces or eliminates the cost of holding inventory and the need to locate buyers that can use the materials. The scrap firm that handles limited quantities of usables and isn't looking to specialize in this niche can then concentrate on the scrap materials it knows best, but still profit from the usables it uncovers. Working with established usables dealers can also free newcomers to this market from many of the other requirements tied to the usables business.
While these necessities aren't outrageous, those who are considering a major move into the usables arena should ponder the following essentials before jumping in.
Plant area. Most usables must be protected from the weather and kept segregated from scrap to avoid stains and contamination, so an indoor or covered space where usables can be kept clean and dry is vital—even if you market usables through others. Many in the business further recommend that any usables operation be completely separated from scrap recycling operations, ideally with a separate entrance and exit if usables buyers will visit your facility. They also emphasize that the usables area should be clean and well organized like any other retail operation.
Equipment. Though handling usables eliminates processing by definition, it still often requires certain material handling equipment to load and manipulate the usables as necessary. It may be possible to use equipment employed in your scrap processing operation for usables as well, but this increases the potential for contamination and could hurt the efficiency of both operations.
Details of the materials. In order to market usables to end users, you need to know certain characteristics of those materials. To market most aluminum, stainless steel, and iron and steel usables, for example, the seller must typically have at his fingertips information on the gauge, temper, and size of the material—and be able to guarantee these properties—according to usables experts. Different buyers may also shop based on different sets of guidelines, including government specifications or standards issued by the American Society for Testing and Materials (Philadelphia) or the American Society of Mechanical Engineers (New York City).
Inventory tracking capabilities. Although manual methods of tracking inventory may suffice for a small usables business, a well-administered automated system can immediately tell you whether you have available a certain gauge or size of material among the wide range of items that you might have in inventory.
People power. Getting professional advice is vital to any new usables business, according to those who have been there. "Until you're thoroughly familiar with the usable products coming into your plant, you would be wise to consult and work with a more expert handler," one industry executive suggests. And once the operation is fully launched, you'll need people to staff it, though they may be "borrowed" from the scrap side of your business.
Slow but Serious
Given the slow learning curve, effort, and investment needed to move into a new business area, many usables experts counsel their fellow scrap recyclers interested in usables to begin slowly and cautiously, perhaps by simply setting aside specific usables for known customers or selling to usables dealers. "When we began to develop our usables business we started slowly," says Gordon. Eventually, the new venture grew large enough that the company moved it to a separate facility equipped with its own material handling equipment.
In fact, the usables business seems to lend itself to small beginnings since quantities needn't be large to be marketable, Cohen says. "Perhaps the biggest misconception concerning usables is that they are profitable only if you can sell the material in truckloads." Not so, he emphasizes, noting that buyers can often be found even for lots as small as 500 pounds.
Some usables proponents, however, question whether a low-key interest in usables is likely to pay off. "A casual approach, without a significant investment in time and financial resources, may turn out to be a liability," cautions Kipnis, who believes that taking on usables should not be half-hearted and must turn into a full-time operation to be successful, unless, of course, recovered items will be marketed through established usables dealers.
In any case, whether you simply watch out for the occasional opportunity to recover usables from scrap and sell them on to usables dealers or you establish your own separate, full-time usables business, there are exciting possibilities in handling usables and they shouldn't be ignored. As Adams sums it up: "Any additional area of activity that will help a scrap dealer diversify, increase his margins, and add to his profitability, should be investigated."
A Usable Twist
A recent article in the San Jose (Calif.) Mercury News reveals: "The FBI has cracked a multimillion dollar theft and fraud ring reselling new and used Silicon Valley computer components, many of which were supposed to be destroyed as obsolete products." The story represents an odd twist on a recent entry to the usables business—computer chips.
Some recycling firms that have traditionally recovered precious metals from electronic circuits boards are getting involved in recovering and reselling whole generic computer chips, a boost to a business that has suffered because "many computer boards are marginal or just not worth processing" today, according to Ronald Rosenson, president of Behr Precious Metals Co. (Rockford, Ill.).
Bruin Electronics (Rockford, Ill.) is active in this market, which differs from most other usables in that some processing is involved. The firm's president, Peter Dietl explains that in addition to removing the chips from the boards, stored program information must be purged from the chips. The firm must also resolder the chips' leads before they can shipped to customers for reuse. In contrast to more common usables, most of the chips are sold abroad, moving to the Far East, South America, or, to a lesser extent, Europe . —S.W.
Traditional recycling it ain't, but handling usables may offer recyclers a relatively low-cost, low-risk opportunity to profitably diversify.