A Good Year for Recycling

Probably the most interesting trend to watch in 1997 was the continued merger and acquisition activity in the scrap metal industry. This type of activity, which has characterized the scrap metal market over the past few years, picked up steam in 1997. To nobody’s surprise, the three publicly traded consolidators (Metal Management Inc., Chicago; Philip Services Corp., Hamilton, Ontario; and Recycling Industries Inc., Englewood, Colo.) led the pack.

One of the most spectacular was the merger of Metal Management Inc. (MMI) and Cozzi Iron & Metal, Chicago. Announced in March, the merger is expected to be final this month, according to Xavier Hermosillo, director and board secretary of MMI. When the merger is complete, Albert Cozzi, president of Cozzi, will become president and chief operating officer of MMI, and his brother Frank Cozzi will be a vice president of MMI and chief operating officer of Cozzi.

Including the Cozzi deal, MMI made an astonishing 18 mergers and acquisitions of scrap companies in 1997. These include Aerospace Metals, Hartford, Conn.; Atlas Recycling, Corpus Christi, Texas; Gold Metal Recyclers, Dallas; Goldin Industries, Gulfport, Miss.; Reserve Iron & Metal, Cleveland; Superior Forge Inc., Huntington Beach, Calif.; Spectro Metals, Houston; Yonack Iron & Metal and Yonack Services, Dallas; The McCleod Group, Los Angeles; Houston Compressed Steel, Houston; The Isaac Group of Companies, Toledo; Hou-Tex Metals Co., Houston; Proler Southwest, Houston; and Proler Steelworks, Jackson, Miss.

In addition, MMI acquired half of several companies as a part of its merger with Cozzi, and so MMI actively acquired the other halves of both companies in order to own them outright. This includes PerlCo LLC, Memphis, Tenn.; and Salt River Recycling, Phoenix, Ariz.

Philip Services (formerly Philip Environmental) also made a number of acquisitions in the scrap market and related markets in 1997, both in North America and Europe. And late in the year, the Canadian company established a U.S. corporate office in Pittsburgh.

In the company’s most significant move in the scrap industry to date, Philip Services acquired venerable Luria Bros., Cleveland, a division of Connell Ltd. Partnership, Boston. The company also entered into definitive agreements to acquire the Steiner-Liff Metals group of companies, Nashville, Tenn., and the Southern Foundry Supply group of companies, Chattanooga, Tenn. When these transactions are complete, John DiLacqua, the current president of Luria Bros., will become the executive vice president of Philip’s U.S. ferrous operations.

Philip Services also acquired Intermetco Ltd., a large ferrous metals recycler also located in Hamilton; Luntz Corp., Canton, Ohio; Intsel Southwest Partnership, Houston, a steel distributor; Alcan’s aluminum alloys plant in Guelph, Ontario; Conversion Resources Inc., Cleveland; Warrenton Resources Inc., Warrenton, Mo.; and Reynolds Metals Co.’s Bellwood Processing facility in Richmond, Va. In addition, the company agreed to merge with Allwaste Inc., Houston.

Early in the year, Philip Services acquired Allied Metals, a large ferrous scrap processor in the United Kingdom. Then, towards the end of 1997, the company’s European subsidiary, Philip Services (Europe) Ltd., acquired two more British metals recycling firms, BM Metals Recycling Ltd., Cinderford, England, and E. Pearse Ltd., Exeter, England. The company also announced plans to build an electric arc furnace dust recycling plant in Cardiff, Wales. At last count, the company boasted 19 facilities in the U.K.

The other major public consolidator, Recycling Industries Inc. (RII), was also active in 1997. Some of RII’s acquisitions included Addlestone Recycling Corp., Metter, Ga.; Grossman Bros. Co. and its sister firm Milwaukee Metal Briquetting Co., both based in Milwaukee; Jacobson Metal Co., Norfolk; Mindis Metals Inc., Atlanta; Central Metals Co., Atlanta; William Lans Sons Co., South Beloit, Ill.; and Sunshine Metal Processing Inc., Opa Locka, Fla. RII also opened a new recycling facility in Warrenton, Ga.

Another interesting trend that began to take hold in 1997 was that of cooperation between smaller scrap processors in order to compete with the larger companies. For example, Metro Metals Northwest, Portland, Ore.; Mount Hood Metals, Portland; and Cliff Copy Metals, Vancouver, Wash., combined forces to operate a new heavy duty shredder. They formed the joint venture in order to ensure that they would have enough ferrous scrap to feed the shredder.

In addition, Mandel Metals Recycling Division and Universal Scrap Metals Inc., both based in Chicago, signed a binding letter of cooperation. This was characterized as a "strategic alliance" rather than an acquisition or merger. In a similar move, Criterion Recycling, E. Providence, R.I., and M. Sugarman, Quincy, Mass., formed a strategic partnership scheduled to last for the next five years.

Acquisitions were not limited to the metals side of the market. Rock-Tenn Co., Atlanta, acquired Waldorf Corp., St. Paul Minn.; Rite Paper Products Inc., Wright City, Mo., and Davey Co., Jersey City, N.J. Also, The Peltz Group, Milwaukee, acquired Ideal Paper of California, Seal Beach, Calif. The recycled fibers division of the Newark Group, Cranford, N.J., bought Capital Recycling, Tallahassee; the international division of William Goodman & Sons Inc., Sunrise, Fla.; and Yorktowne Paper Mills Inc., York, Pa. Jefferson Smurfit Corp., St. Louis, acquired three recycling operations from DuPage Paper Stock Inc., Chicago. And City Carton Co. Inc., Iowa City, Iowa, acquired Durbin Paper Stock Co., Rock Island, Ill., a unit of Waste Management Inc., Oak Brook, Ill.

In the secondary glass industry, Consumers Packaging Inc., Toronto, and Owens-Illinois Inc., Toledo, Ohio, joined together to buy Anchor Glass Container Inc., Tampa, one of the largest manufacturers and recyclers of glass containers in the U.S. Also, Greenman Technologies Inc., Lynnfield, Mass., purchased two operations from BFI, Houston : BFI Tire Recyclers of Minnesota Inc., Savage, Minn., and BFI Tire Recyclers of Georgia Inc., Jackson, Ga.

These are just some of the mergers and acquisitions that took place in 1997, and this urge to merge shows no signs of diminishing as the year draws to a close.

Another interesting sector to watch in 1997 has been the railroad industry. There have been a number of mergers between the already dwindling number of Class I railroads in the U.S., and scrap processors felt the impact this year. In the Southwest, Union Pacific experienced growing pains throughout 1997 as a result of its acquisition, late in 1996, of Southern Pacific. As a result, scrap processors in the region had more than the usual difficulty obtaining sufficient gondola cars for shipping scrap to consuming mills. The UP/SP situation also slowed traffic of railcars to other railroads, and these problems are expected to continue at least until the first quarter of 1998.

In the Northeast, CSX Transportation Inc., Richmond, Va., and Norfolk Southern Corp., Norfolk, Va., announced a proposal in March of this year to jointly purchase and divide the assets of Conrail, Philadelphia. Although industry observers are divided as to whether the move will increase or lessen competition, most agree that shippers in the New York area will likely benefit from increased rail choices and possibly lower rates, since Conrail previously held most rail lines in the Northeast. The proposal is scheduled to be heard by the Surface Transportation Board by the middle of 1998.

To help ease the ongoing shortages of gondola cars, CSX has announced plans to add 1,200 gondola cars to its fleet early in 1998. In addition, the Institute of Scrap Recycling Industries, Washington, renewed its efforts in 1997 to foster dialogue between representatives of the scrap industry, mills, and railroads to address problems with gondola handling.

Although municipal recycling programs continue to be under pressure to increase efficiency and reduce costs, this sector experienced some gains in 1997. There was a lot of emphasis on continuing to develop markets for recyclables, partly through encouraging the purchase of recycled products. Along these lines, there was some progress in getting the federal government – with all its purchasing power – to actually follow through on its many resolutions to purchase recycled products.

A national recycling awareness campaign, called America Recycles Day, debuted November 15. The event was modeled after an event that has been organized for several years in Texas. Across the U.S., many states held events educating citizens about the importance of recycling, reducing waste and buying recycled products.

There was also more emphasis on recycling market development programs such as the CWC (formerly the Clean Washington Center), Seattle, which broadened its scope in 1997 by leaving the umbrella of state government to become part of the Pacific NorthWest Economic Region (PNWER). Along the same lines, the Greater Cleveland Recycling Initiative – modeled after the CWC – was formed in Northeast Ohio. The project’s goal is to strengthen the market for recycled-content products in the region.

With prices for municipal recyclables still somewhat depressed in 1997, the large waste haulers continued to sell off material recovery facilities (MRFs). In addition, Browning-Ferris Industries (BFI), Houston, announced plans late in the year to sell its waste operations in Europe and Asia to Suez Lyonnaise des Eaux, Paris, citing a need to focus on domestic operations. SITA, the Suez Lyonnaise subsidiary that will take over BFI’s overseas operations, also purchased the French and Spanish operations of Waste Management Inc. (WMI), Oak Brook, Ill., earlier in the year.

WMI experienced some management turnover late in the year, and is currently being sued by its shareholders for allegedly not disclosing an accurate picture of the company’s finances. Operating revenues and profits declined from October 1996 to October 1997, due in part to depressed commodity prices within WMI’s recycling division.

While the large waste haulers continued to struggle to some extent with recycling in 1997, municipal programs reevaluated recycling costs and tried new methods such as reduced frequency of collection, commingled co-collection, and more advanced and automated MRFs. Many programs have come up with interesting and creative solutions to increase their efficiency.

Not surprisingly, the rate of new MRFs and mixed waste processing facilities (MWPFs) being built has slowed somewhat compared to several years ago. While private firms are still building and operating MRFs, the trend is now toward increased ownership of facilities by counties and municipalities.

Although export markets for ferrous scrap were not particularly strong in 1997, this was more than compensated for by very healthy domestic demand from all the new minimill capacity that continues to come on line in the Midwest and Southeast. A strong U.S. economy, a healthy automotive industry and new uses such as residential construction have bolstered demand for new steel. Most analysts predict stable ferrous scrap markets into 1998.

A number of scrap processors are investing in super sized shredders which have the capacity to shred more scrap and to handle bulky material that smaller shredders can’t. This is expected to increase the North American scrap supply in 1998, although some have raised the question of whether processors will be able to obtain sufficient scrap to feed these huge shredders.

On the export side, while Asian markets are expected to stay somewhat quiet, Latin America is showing increased demand for U.S. scrap.

Lead and zinc also face opposing supply/demand balances. Lead is heading into a surplus situation at the end of 1997 and into 1998, whereas demand for zinc is strong and may exceed supply. There is a great deal of mine production for lead, decreasing scrap demand and prices.

Zinc, on the other hand, has overcome the surplus that was caused by excess supplies from the former Soviet states pouring into the Western market in the early 1990s. Stocks have been decreasing through 1997, while demand has been strong from sectors such as galvanizing.

Demand for nickel and stainless steel was stable but not spectacular through 1997. Weaker export demand from Europe and Asia put something of a damper on the market, while supplies continued to increase. Prices were volatile, as well, partly due to the effects of material from Russia hitting the Western market. Nevertheless, strong domestic demand and a prosperous U.S. economy is expected to keep the demand for nickel and stainless steel scrap healthy into next year.

Titanium markets were stable but weakening this year, with fairly strong aerospace demand and continuing use of the material in sporting equipment. But a supply surplus pushed down prices.

Although demand for both primary and scrap gold has been strong in 1997, with scrap supplies declining and producers searching for additional sources, prices have not been as healthy as expected. India consumed the most gold used in jewelry in recent years, and the country’s demand continues to grow. Overall, the gold market is stable but not spectacular.

On the other hand, silver markets have been healthy. India has shown continued strong demand for this metal, as well. Domestically, retail sales for sterling silver jewelry, flatware and gift items have risen, although the use of silver in photography has declined somewhat with the advent of digital photography.

Platinum and palladium have experienced confusing markets in 1997. Russia threw markets off by its failure to ship materials for extended periods. In addition, the scrap catalytic converter market has not been as strong as world prices for platinum and palladium.

Secondary fiber has experienced something of a roller coaster ride over the past few years, with record high prices followed by sharp declines. In 1997, however, paper markets showed more moderation, with most grades experiencing at least modest increases in price.

Prices for old corrugated cardboard increased mid-year, but slowed toward the end of the year. Analysts attributed at least some of the slowdown to seasonal factors. Markets for old newspapers have been inconsistent in 1997, with generally weak markets except in parts of the Midwest where demand from Canada was strong. The office paper market is stable, although many deinking pulp facilities continue to struggle. Finally, demand and prices for mixed paper are fairly strong.

As 1997 draws to a close, secondary commodity markets range from healthy to stable, with none of the drastic downturns witnessed in recent years. If the U.S. economy remains strong, next year may be a good year for recycling, as well.

The author is former editor of Recycling Today.