Scrap metal prices have fallen by 50 percent in four years, forcing scrap yards to find ways to navigate a tough market.
Demand from overseas markets like Turkey and China, which were big customers of scrap metal in boom times, has slowed. That puts pressure down the supply chain, all the way to scrap yards in the Buffalo area that collect material to feed the industry’s pipeline.
Industry watchers say 2015 was an exceptionally awful year for scrap metal prices. And while the boom times have not returned, observers say prices are showing at least some signs of improvement.
Marks Auto Parts in Buffalo sees the ebbs and flows of the industry as it collects junk cars known as “end of life vehicles.” After customers harvest the cars of reusable parts in a massive yard on William Street, the vehicles are crushed in a machine, stacked, and shipped out for shredding, en route to a steel mill.
Martin T. Marks, vice president, said his business weathered the drop in prices by emphasizing its auto parts sales. “There’s a lot of yards in our industry that are on the verge of going out, period, because they can’t compete, they can’t hold on,” he said.
The Institute for Scrap Recycling Industries said nationwide, about 78 yards have closed in the past year, including some that had multiple yards owned by one company. The industry group said that based on the current climate, additional closings and consolidations are expected this year. According to data from the Steel Index, U.S. scrap steel prices were about $200 per ton last month, compared to more than $400 per ton in 2011 and 2012.
Marks said he avoided the mistake some scrap yards made of getting hooked on a bull market for scrap, the same way some investors hold on to a hot stock too long, said Dan Marks, operations manager for Marks Auto Parts.
“That’s what happened to a lot of the smaller guys: they would buy it low, and the market just kept going so they all waited, and you get comfortable with that,” he said. “You bank on that money every month. That’s why we always say, we’re a parts business, scrap’s a byproduct.”
No more $300 cars
Everything boils down to price. Nowadays, Marks pays an average of $150 for an end-of-life car, said Matthew Marks, general manager. When prices were hotter, Marks would pay about $300 for a vehicle - assuming a rival yard wasn’t willing to outbid.
“Even at 300 bucks, you were fighting for the cars at that point,” Dan Marks said.
Scrap metal prices often are determined by global economics.
“There was a lot of demand out of China that was pushing that number up,” said Todd Levin, president of Niagara Falls-based Niagara Metals, which has four area yards.
But as China’s manufacturing upswing abated, so did demand for scrap metal exported from the United States. When oil prices dropped last year, that should have been a hint that scrap metal prices would fall, as well, Levin said.
And when export markets cool off, the U.S. scrap metal suppliers who used to export try to sell to the domestic market, creating greater competition for yards that don’t send their material to overseas customers.
Niagara Metals collects about 50 percent of its material from factories, about 30 percent from demolition and construction projects, and the other 20 percent from the public. It sends what it processes to steel mills as close as Hamilton, Ont., and as far away as Indiana.
Last year, when scrap metal prices fell off, Niagara Metals saw the volume of material it took in fall 40 percent. In some cases, he said, building demolitions were put on hold because the projects would recover too little for the steel that would be salvaged. And some potential customers were less inclined to gather material and bring it in if they weren’t going to receive much for it.
Dan Marks sees an unpleasant side effect of that trend. “From the environmental standpoint, it’s the worst thing that can happen, because you don’t want these heavy metals in a landfill, you want them recycled. That’s the worst part about it all. As prices go down, people get sloppy.”
Levin said record sales of new autos last year prevented scrap metal prices from falling further, as factories churned out steel for new cars. In slower times, Levin said, Niagara Metals shifts employees into maintenance projects the company didn’t have time for during busier periods.
Upstate Shredding – Weitsman Recycling takes a conservative approach that helps the business endure when scrap prices fall, said Adam Weitsman, the CEO.
“It’s pretty consistent for us,” Weitsman said. “There’s really been no adverse affect on our business, just because we don’t speculate on scrap. Once we buy it, we immediately sell it. So we don’t keep inventory or piles of scrap. So our margin is pretty much built in.”
When the commodity price fell, Weitsman noticed the volume of what customers brought in dropped off. “In the wintertime, you don’t want to be busting your butt out in the cold and come in and get like $4” for what was collected, he said.
Upstate Shredding has scrap yards across New York and Pennsylvania, along with two shredding facilities that grind up the material.
Scrap economics also ripple to other industries. Wendt Corp. on Walden Avenue in Cheektowaga makes shredders that are sold around the world.
“We’re still busy,” said Joseph Bertozzi, vice president of finance. “We have orders. The industry in general though, is very much hurting. It seems to have stabilized at this point.”
“We are conservatively managed and the important part for someone in our industry is to not become overleveraged,” he said.
The worst of the downturn in scrap pricing appears to have been in the fourth quarter of last year, Bertozzi said.
“I think we’re getting a sense that things are a little calmer in the markets,” he said. “The price of steel has come back a little bit. The price of copper has stabilized. I think the bloodletting has stopped.”
A big unknown, he said, is China’s overcapacity in steel production. “Eventually that tide of overproduction is going to find its way into other markets, and that’s happening now,” he said.
Meanwhile, Wendt is exporting products to Canada and Mexico – despite the financial obstacle created by a strong U.S. dollar - and is actively pursuing the Brazilian market, he said.
Are better prices on the horizon for scrap yards?
Scott Horne, counselor for the Institute for Scrap Recycling Industries, said ferrous metal – like steel and iron – “has improved significantly over the past two months.”
Horne credited two factors. One was the scarcity of supply; the sustained low prices “brought the flow of inbound scrap to a trickle.” And second, he said, demand is picking up, even in export markets. In some regions, he said, ferrous scrap prices have increased by as much as $50 per gross ton.
It’s hard to know if that upward trend will last, Horne said. But he noted that the “supply of obsolete scrap cannot be turned on and off like a faucet. To replenish the scrap ‘pipeline,’ it will take several months to get the obsolete scrap chain going again.”
Weitsman, of Upstate Shredding, certainly isn’t downbeat about the market. His company recently opened a $25 million recycling operation in New Castle, Pa., with 45 jobs, that he initially wanted to locate in Buffalo. The business has a yard in Brant, but Weitsman still has hopes of winning approval for a Buffalo location.
“We want to be in Buffalo,” he said. “We’re not asking for any incentives or grants or anything.”