Is the Scrap Market Rebounding? - Sector Check
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Is the Scrap Market Rebounding?

By Richard R. Rogoski

Article Date: 08-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.


Time will bring better days, but in the meantime, dealers and manufacturers serving this market continue to sell equipment and attachments that improve customer efficiency.

Although the construction industry is still reeling from a historic recession many had hoped would already be showing signs of ending, manufacturers and dealers of scrap and recycling equipment are seeing some hopeful signs.

“Demand has started to pick up again,” says Larry Mattus, a spokesman for Gensco America Inc. in Decatur, Ga. “We’re still down from last year, but requests for quotes are up again.”

As the American division of Toronto-based Gensco Equipment, this company has become a leading manufacturer of metal-processing grapples, shears and magnets, and a supplier of magnet power and control systems that can be attached to excavators and material handlers.

But while demand for both scrap and attachments appears to be picking up, Mattus admits that those who deal mainly with ferrous (iron) scrap are not seeing much of a recovery yet. “We were extremely busy last year,” he said. “The commodities markets in general were busy until late last year. Then things quieted down.”

However, Mattus does note: “We’ve seen a slow and steady uptick since the beginning of the year.”

Other manufacturers are still waiting for a turnaround. “There’s no demand but plenty of supply,” reports Sal LaCorte, Midwest regional sales manager for Two Harbors, Minn.-based Stanley LaBounty, another leading manufacturer of attachments.

LaCorte says sales this year are off about 50 percent from last year.

The demand for steel and, therefore, the demand for iron scrap that is recycled to make new steel, is down because factories have cut production of everything from kitchen appliances to automobiles, LaCorte says. And since the automobile industry is a major user of steel, LaCorte says that until the “big three” American auto makers start rolling out more cars, the domestic demand for ferrous scrap will continue to be depressed – as will the demand for scrap-processing equipment.

High-grade aluminum, which is used in the aerospace and food industries, and copper are still in demand, he says. But even that demand has cooled in this lingering recession.

Stanley LaBounty also makes concrete pulverizers, which are used to crush and recycle concrete for use in construction and highway building projects. But even that market has slowed.

“There are plenty of projects on the boards, but funding won’t start until mid-2010,” he said, adding that if the federal stimulus program leads to more highway construction and improvement projects, demand for concrete pulverizers will definitely pick up.

Unfortunately, the tightened credit market, which has stalled many commercial and residential building projects, also has affected the ability of many dealers to get purchase loans for new excavators or attachments. “My distributors can’t bring in inventory because of the credit crunch,” LaCorte said.

Still, he remains optimistic that business should start to rebound
early next year.

T.J. Schulte, product manager for Geith Precision in Statesville, N.C. – another major supplier of grapples, shears and pulverizers whose parent company is Doosan Infracore America Corp. – remains optimistic despite the fact that his company launched its line of scrap attachments in March 2008. “We’ve seen the demand change a lot,” he said.

Right now, steel shears are in the biggest demand, but Schulte expects the market for concrete pulverizers to improve once stimulus-funded highway construction projects get under way.

And even though the market for attachments remains tight, competition remains high. “All our competitive brands are chasing after business as hard as we are,” Schulte said, adding that there are a lot more people chasing fewer contracts.

Makers of excavators and material handlers also are feeling the pinch.

Robert Urry, communications and sales promotions specialist for Hyundai Construction Equipment U.S.A. Inc., says sales are down about 30 percent from last year. But the company did hit its sales target for June. Even so, Urry doesn’t foresee any real recovery until at least the end of this year.

 

Prices and Markets

Approximately 8,000 companies in the U.S. handle scrap metal recycling for a combined annual revenue of $30 billion. Of those companies, the top 50 control only about 50 percent of the market.

Aside from large national firms like Schnitzer Steel and Rio Tinto Alcan, there are many small “mom and pop” operations. But the financial success of any company, large or small, depends on the current price of specific metals.

Constantino Lannes, president of Charlotte, N.C.-based Sennebogen LLC, a manufacturer of material handlers, said the dramatic drop in price for scrap actually began during the
first quarter of last year. Ferrous
metal, for example, eventually hit a low of between $100 and $160 per ton, he says.

Dan McCausland, an outside sales rep for Volvo Construction Equipment and Services in Lakeside, Calif., says ferrous metal prices on the wholesale market went from $600 to $650 per ton last year to its current price of between $200 and $250 a ton.

Jerry DeVivo, owner of Tryco Metal Recycling in Chiefland, Fla., said last year he was selling ferrous scrap for 21 cents per pound. Now he’s getting only seven cents a pound.

Copper prices are still holding steady at about $2 a pound for No. 1 grade copper and about $1.85 for No. 2 grade, he says.

Scott Collins, vice president of Sales and Marketing for Tracey Road Equipment Inc. in Syracuse, N.Y., agrees that wholesale prices for ferrous scrap have plummeted. In July 2008 prices hit a high, he says. In September, prices took the worst nose dive he can remember.

“It went from $500 a ton to less than $100 a ton in a month. Now it’s between $200 and $250. If it comes back to $300 a ton, that would be great.”

Lower scrap prices also affect the dealers, says Schulte. “Last year when steel prices were high, a lot of suppliers couldn’t keep attachments in stock.”

Although the domestic market is slow to recover, the one glimmer of hope is that the foreign demand for metals stays strong. “China is the largest scrap buyer in the world,” Collins said. But India and Turkey also are showing large demands, he adds.

McCausland says demand is still high in China and India but has tapered off in South Korea and throughout Europe.

Gerald Tillett, vice president and general manager of Joe Money Machinery, a Gensco and Geith dealer in Huntsville, Ala., says he’s very much aware of the slowdown in the overseas market and its effect on pricing. “Prices are definitely on the low side, but when scrap starts moving overseas again it will pick up.”

Interestingly, demand for scrap-processing equipment is now growing in South and Central America, dealers report.

 

Supply Chain Demand

With the overseas demand for scrap outpacing the U.S., the demand for scrap processing equipment is highest in regions in close proximity to commercial seaports, says Sennebogen’s Lannes. As a result, he sees much of the demand continuing to come from the New York/Boston corridor; the Seattle/Portland area; and the Los Angeles and San Francisco areas.

Tillett, whose service area also includes Georgia and parts of Florida, agrees, saying that the port cities of Tampa and Miami remain strong markets.

But even in nonport cities, dealers are still buying from manufacturers, and scrap yards are still buying from dealers – although not as much or as often as they once did.

“A year or year-and-a-half ago we were selling 60,000-pound and larger excavators,” said Tillett. “Now it’s 45,000 to 50,000-pound machines.”

And mom and pop operations are only buying new machines when their old ones need to be replaced, he adds.

Collins says he’s now getting a lot of requests for quotes from customers who delayed new purchases for as long as they could. For many, he says, it comes down to long-term maintenance and downtime versus a new machine.

Collins says his overall sales this year are down only about 20 percent. But he attributes that to being well diversified, selling Sennebogen material handlers, Kawasaki wheel loaders, Kobelco excavators, Stanley LaBounty shears and grapples and Geith attachments, as well as Freightliner trucks.

Volvo’s McCausland, who has seen sales this year slide 35 percent from last year, is still finding buyers. “This month we sold two excavators with shears,” he said.

Shawn Gallagher, director of sales for Midlantic Machinery in Harrisburg, Pa., has seen his sales slide nearly 60 percent this year and watched as 66 employees were cut from the payroll. But at the beginning of the year he says he added a line of Sennebogen material handlers in a push to expand the scope of his dealership by including the scrap market.

And the addition of this new line also will serve other applications, he says.

“In addition to the scrap industry, we see our Sennebogen line addressing the needs of a myriad of customer applications, including forestry, port applications, aggregates, coal generation plants, wood processing operations and transfer stations, just to name a few,” said Gallagher. “To date, we have quoted a number of machines and at present have a unit in stock that we are using for demonstrations. Our customers are very interested in the capabilities and performance of the machine.”

DeVivo, whose three-year-old company operates a 5.2-acre scrap yard, earlier this year purchased a Hyundai R210 LC-7 excavator from the Orlando office of Keller, Texas-based U.S. Shoring & Equipment. DeVivo then attached a Gensco magnet to this excavator so he could better unload trailers and stack his metal scrap higher. And he is currently fabricating a grapple attachment for the same machine.

He says the machine’s fuel economy and its ability to move extra-heavy loads has increased his overall efficiency around the yard.

U.S. Shoring also recently sold five wheel loaders to auto recyclers in Orlando and Titusville, Fla., reports Steve Fowler, general manager of U.S. Shoring’s Florida office.

So even as manufacturers and dealers continue to wait for a nationwide economic recovery, they are still selling equipment and are still confident that the scrap/recycling market is poised for a healthy rebound.


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