Editor's focus - on future of scrap metal recycling industry - Brief Article - Editorial

Recycling Today, Dec, 2001 by Brian Taylor

If the consolidation that affected the scrap industry in 1997 and 1998 caused disruptions in people's lives, what is about to occur in the steel industry may prove equally traumatic.

As Recycling Today goes to press, the industry is abuzz with the rumor that most of America's integrated steelmaking capacity could be rolled up into one giant company. Talks are allegedly occurring that could merge the assets of up to six integrated steelmakers (two of which are in bankruptcy) into one larger company that would ideally be able to weather economic difficulties and compete globally more successfully than many of the component parts have been able to do.

Any actual consolidation that takes place may be less sweeping, but some form of merging (and resulting plant closures) seems to be a certainty.

Not long after news of this merger proposal broke, some electric arc furnace (EAF) operators were floating the idea of looking toward consolidation in that segment as well. EAF operators may not be plagued by all of the same problems facing their integrated competitors, but they can certainly feel pressured to get bigger in order to compete with a newly revived integrated sector.

It is tempting to state that this consolidation is an inevitable, irreversible trend that will strengthen the hand of steelmakers versus that wielded by their scrap suppliers. When scrap dealers have only a handful of buyers to negotiate with, logic would dictate that they will not be able to fetch top dollar for their product.

But it should probably be remembered that just four years ago, steelmakers were expressing concern that the rapidly consolidating scrap industry would develop into a handful of large companies with too much negotiating power.

Steelmakers may have a lot to worry about right now, but dealing with a powerful cabal of five or six scrap companies is not among those concerns. Some very successful regional consolidation has taken place in the scrap market (and continues to take place), but this has not created a half-dozen coast-to-coast operators who control the flow and pricing of scrap.

In fact, those who envisioned such a scheme have generally fallen on hard times. Recycling Industries Inc. is no more, Metal Management Inc. is out of bankruptcy but still losing money, and the scrap empire assembled by Philip Services Corp. may be dismantled between the time this column is written and when it hits the desks of readers.

The steel industry consolidation may have more permanency than the scrap consolidation of the late 1990s. The aluminum industry went through a dramatic period of consolidation that, thus far, has not been reversed.

But corporate spin-offs occur just as regularly as mergers. So while the mergers occurring within the steel industry may be impressive, there is no guarantee they will be permanent.

What probably can be guaranteed is that the mergers will make life difficult for many people in the steel industry and its layers of suppliers. There will be anxious times as plants are closed, jobs are lost and contracts for sales are cancelled.

Many scrap recyclers may lose nearby and familiar destinations for their scrap. (That appears to be happening here in Cleveland, where the LTV Corp. furnaces are being idled.) They may also have a new voice at the other end of the telephone to deal with.

The light at the end of the tunnel that is being promised is that ultimately, the industry will be better off when capacity is more in line with demand. Many recyclers are anxious to see whether positive changes will come out of this round of turmoil.