by MAURA KELLER
Scrap metal prices are at an all-time low. This trend began in 2015 and as a result, recycling rates are decreasing and scrap metal recyclers are struggling to make a profit.
Jason Gates, chief executive officer of waste management sensor-and-data company Compology, said that there are many factors that Compology’s customers cite trade wars, labor disputes interrupting production schedules, threats of an economic downturn that continue to impact the scrap recycling market.
“Because of that, keeping operating costs low and keeping content pure are vital to any scrap metal recycler’s success,” Gates said. “We see most recyclers now creating goals of reducing operating costs of commodity collection; reducing cost per collected ton; eliminating light loads; avoiding overweight pickups, and winning more business with competitive pricing.”
As Gates explained, for decades, market conditions have caused metal prices to ebb and flow. “We’re seeing a shift in focus with more attention on efficient operations within industrial metal recycling,” Gates said. “Industrial recyclers are competing to differentiate on value and price, but the savvy ones are leveraging technology to improve efficiency so they don’t have to compete on margins either.”
Michael Saia, chief executive officer of XTechnology Global said that one of the biggest instigators of the current metal pricing is that precious metals have seen an increase while non precious metals have seen a decline due to a number of factors, the largest issue being China.
“This includes tariffs, and import duties on certain commodities along with rejection of other commodities such as plastics,” Saia said. “The larger recyclers can afford to hold inventory to wait out market downturns, the smaller and mid-size companies cannot. Currently the market trend is going negative without any hard forecast of an uptick.”
Where Saia is seeing a shift in focus is not necessarily in the type of material, but rather more attention to efficient operations within industrial metal recycling.
“Industrial recyclers are competing to differentiate on value and price, but the savvy ones are leveraging technology to improve efficiency so they don’t have to compete on margins either,” Saia said.
In its recent 2019 outlook report, GLE Scrap Metal, a full service recycling company with operations throughout the U.S., said “The metal recycling market is projected to grow from $277 billion in 2015 to $406 billion by 2020 because of the strong global economy and the increasing rates of industrialization in many growing countries.”
But in September 2019, Sims Metal Management issued a trading statement which cited that drops in global scrap metal prices are poised to drive volumes lower and materially impact company profits through the first half of its 2020 fiscal year. In the statement, Alistair Field, chief executive officer and managing director at Sims said, “The escalating trade wars that I discussed at our year-end results meeting continue to reduce the demand for steel and aluminum. At that time, steel mills appeared to be managing the lower demand, but in early September they materially reduced their scrap purchases, and also their outlook for scrap purchases. This reduction in demand for scrap has driven a steep fall in prices. The current sales price results in a buy price that is potentially below the level at which it is economical for a number of our suppliers to gather and sell scrap. Alternatively, some suppliers may choose to sit on inventory until prices recover.”
Field stated that, “While it is not possible to predict the duration of these very low prices and poor liquidity, history shows that the scrap market tends to mean-revert, so we expect it will recover over the medium term.”
Staying Above Water
What is consistent during the current dip is that scrap metal recyclers are looking to become as efficient as possible – from improving container and asset utilization, to optimizing staff needs, to decreasing transport costs, to improving safety and DOT fines.
One way that recyclers are operating more efficiently is through data and container monitoring technology. For example, Compology provides scrap metal recyclers with rugged container cameras paired with AI-powered software to better optimize hauls, monitor materials, improve customer service, and maximize assets. What does this really mean?
According to Gates, both parties can work together, looking at the same data, to prioritize pick-ups based on the ability to remotely appraise content and identify high value materials based on market peak pricing.
“Remote monitoring allows haulers to proactively identify when containers are full and collect at optimal time to avoid light loads and overweight hauls, helping them to better compete on price and keep collection costs lower,” Gates said. “At the same time, they’re differentiating in customer service by providing on-time pickups at optimal weights – right pickups at the right time.”
To understand their return on investment and predict profitability, haulers can now monitor container time on site to determine the value each client provides vs. the opportunity cost of each container lingering longer than it needs to. At an aggregate level, haulers can see how many containers are deployed at client sites vs. how many in inventory. Creating baselines is important for understanding the rate of container fullness at each client and the cost and profit from each client location.
On the Horizon
According to the Institute of Scrap Recycling Industries, China’s continued effort to reform its solid waste management system, means that China enacted stricter standards for scrap imports beginning in March 2018. What’s more, China implemented new import permitting requirements for certain ferrous and nonferrous metal scrap beginning July 2019 and a ban on stainless steel and other metallic scrap will begin in 2020.
Specifically, in July 2019 China began restricting imports of eight additional types of scrap metal, including high-grade copper and aluminum scrap, as well as types of steel scrap.
Although the scrap metal industry is facing challenging times, Gates predicted there is going to be a lot more resiliency against pricing fluctuations because technology allows recycling companies to operate with more margin. “Additionally there will be more transparency between scrap suppliers and recyclers as a result of the data remote monitoring provides, impacting the entire supply chain and even business model of scrap recycling,” Gates said.
Remote monitoring, both at the container level and at an aggregate level, helps both the suppliers and recyclers avoid pickups with poor quality material or contaminants that raise the weight and cost per collected ton.
“Safety is a number one priority for our customers and the industry. Preventing safety hazards, such as propane tanks, remotely through an image, keeps hazardous material out of the shredders or furnace where it can explode,” Gates said. It also prevents overages and overweight pickups, keeping unsafe, heavy trucks off the road.
Saia stressed that although scrap metal recycling continues its downward trend, precious metals are trending positive. “Ferrous and nonferrous are in a downtrend,” Saia said. “Based on the Purchasing Managers’ Index (PMI), which is decreasing, this will have a negative effect on pricing due to soft demand. But precious metals including gold, silver, palladium and platinum will always garner attention, even more so as gold has been trending up.”
Published in the December 2019 Edition