US scrap consolidation benefits market: SSNA panelists

The scrap industry in the US is expected to continue to consolidate, which benefits the market overall, panelists said at Fastmarkets’ event this week

Consolidation of the scrap industry wasn’t at the forefront in the late 1980s or early 1990s, but it picked up speed in the late 1990s, Bobby Triesch, vice president and regional general manager of SA Recycling, told attendees at the Scrap & Steel North America 2023 conference in Dallas on Wednesday.

“The benefits of consolidation are to reduce [selling, general and administrative expenses], perhaps gain some leverage in marketing your finished products to steel mills or aluminium mills, and then ultimately processing capacity — having more tons available to put through your fixed processing, whether they’re shredders or balers or shears. More volume brings down your average operating cost per ton.”

Steel mills have consolidated too. In the 1980s, there were more than 40 different domestic steel producers, but by the late 1990s many had gone bankrupt or been acquired, according to Triesch.

“One of the questions back then wasn’t ‘What are you going to sell to who?’ but ‘Are you going to get paid?’,” he said. “Now you’ve consolidated the steel mill industry into probably five, maybe six big steels mills. Their balance sheets are good, they’re professionally run and operated and they’re investing in new technology. …We don’t spend too much time worrying about credit insurance on our receivables. …We have better customers.”

This industry consolidation has given those steel mills leverage “for sure,” especially in regions like the West Coast where there are not many domestic mills, according to Randy Kahlon, ABC Recycling vice president of sales and marketing.

“For players like us, we have to go export when we see that happening,” he said. “We have no choice but to go to different marketplaces. …The export market has been healthy and good for us, and keeps North American mills at play — keeps ‘em honest.”

Kahlon noted, however, that currency exchange and the value of the US dollar has a “major impact” on pricing mechanisms.

There is “no question” that the domestic scrap industry will see more consolidation, according to Jeffrey Lorch, partner at McKinsey & Company.

“That will be by large, independent scrap suppliers, but also by players who are backward integrated on the steelmaking side,” Lorch said.

Two possible drivers of future consolidation will be a generational change and an unwillingness to invest more in processing lines, particularly on the nonferrous side, Lorch said.

“The patriarch is retiring... there’s a chance to have a liquidity event,” he said.

Higher logistics costs and environmental concerns will also continue to challenge the industry and drive consolidation, Kahlon added.

“There will always be entrepreneurs who love the challenge… so it’s never done,” Triesch said.

“We’re seeing a lot more smaller shredders coming into the marketplace,” Kahlon said. “There’s new types of equipment that allows them to get in — smaller processing, smaller costs. …That’ll be interesting to see how they survive five to 10 years from now. Will they get bought by the bigger guys?”

The family business model will continue to exist, however, according to Sean Daoud, vice president and treasurer at PNW Metals Recycling.

“You can still operate a small yard very efficiently and effectively,” he said. “You’ve got a lot of options to sell [scrap] to from a revenue standpoint and generating the best price.”

To keep up with the important discussions impacting the steel and scrap industry, visit our steel and steel raw materials page.

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