Canadian Scrap Industry Undergoes Major Structuring

As with the American scrap industry, the need for economies of scale sparked by low commodity prices has pushed the Canadian scrap metal industry into a fundamental restructuring.

"The industry has changed more in the past 24 months than in the previous 24 years," says Maxwell Zalev, a past president of CARI (the Canadian Association of Recycling Industries) and president of Zalev Brothers Ltd., a scrap processor based in Windsor, Ontario.

Jack Lazareck, a CARI board member and president of Winnipeg-based Logan Iron and Metal Ltd., notes that there were approximately 75 buyouts over the last year and expects an equal number this year.

More than 1,000 scrap processing companies—two-thirds of them in Ontario’s industrial heartland—continue to employ 16,000 to 20,000 people across the country but the smaller, family-owned scrap dealers are beginning to disappear.

LACK OF INTEREST

In some cases, Lazareck points out, it is a matter of a lack of capital to invest in the latest technology. More often though, he says, third and fourth generation owners are finding their children don’t want to carry on the business. With no one to pass the business on to, these smaller company owners have to make some decisions. Often, that decision is to sell out.

One example Lazareck points to is his cousin, a fellow long time Winnipeg scrap dealer whose name is also Jack Lazareck. Last fall, the other Jack Lazareck and his brother, Mel, announced an agreement in principle to enter into a partnership between their General Scrap & Car Shredder Ltd. and Canadian steel giant IPSCO Inc., based in Regina, Saskatchewan. General Scrap has been IPSCO’s main supplier of scrap for the past ten years. Under terms of the agreement, IPSCO pays the Lazareck Brothers $37 million Canadian (which is equivalent to about $26 million U.S.) over five years in acquiring a majority interest. The Lazareck brothers will continue to manage the company for another ten years.

General Scrap, which is based in Winnipeg, Manitoba, is one of western Canada’s largest scrap metal processors. In acquiring the company, IPSCO inherits four auto shredder facilities and a number of small scrap processing and auto wrecking yards and several auto parts operations throughout western Canada, North Dakota and Minnesota. General Scrap has a workforce of about 300.

Alana Taylor, a spokesperson for IPSCO, reports that the company has also recently acquired a coil processing center in Toronto and a pipe mill in Arkansas. "There is some talk about a new steelmaking facility in the United States," she says, "but no definite plans yet."

BUYING SPREE

In eastern Canada, Hamilton-based Philip Services Corp. has over the past two years become North America’s leading integrated resource recovery and industrial services company with over 300 locations and 11,000 employees throughout the United States, Canada, the United Kingdom and Europe.

As a result of a strategic decision to establish itself in key markets in North America. Philip has gone on a buying spree over the last two years. Company spokesperson Lynda Kuhn reports that Philip has acquired 39 companies since 1996 boosting its revenues from $530 million U.S. then to more than $3 billion U.S. now.

Some of the major acquisitions include Luria Brothers in Cleveland, Southern Foundry and Steiner-Liff in Nashville and All-Waste and Serve-Tech in Houston. In Canada, Philip’s biggest coup was the purchase of Intermetco Ltd., one of Canada’s oldest and largest processors and recyclers of scrap metal products. The company also manufactures and distributes pipes, structural pipe and tubular products across North America. Intermetco employs about 200 people and registered $195 million Canadian in revenues in the fiscal year ending April 30, 1997.

"Intermetco has a 100-year history of providing high quality ferrous scrap and processing services to the steel industry which we will preserve and augment through our multi-service capabilities," says Allen Fracassi, a co-founder and director of Philip Services in a press release. (Fracassi was recently appointed president of the company’s Metals Services Group.)

"It is our goal," he says, "to add value for our steel clients by delivering integrated services from raw material supply through to by-product recovery and end processing and distribution services."

Another Canadian company expanding into the United States is Co-Steel Lasko Inc. based in Whitby, Ontario. Co-Steel has seven ferrous and non-ferrous operations in Canada and two in the United States and has a workforce of about 140. The company buys about 1.3 million tons of ferrous products a year.

At the end of January, Co-Steel completed the purchase of New Jersey Steel (which has been renamed Co-Steel Sayreville) in Sayreville, New Jersey. "It was a strategic fit," says Co-Steel spokesperson Terry Newman. "We are always keeping our eyes open for acquisitions, but it has to make financial sense."

BECOME SUPER REGIONAL

Zalev Brothers is also expanding through recent acquisitions in Ontario and Michigan. Last August, the company signed letters of intent to buy SLC Recycling Inc. of Warren, Michigan.

"Our strategy is to become a super regional company for Ontario and Michigan," Maxwell Zalev explains. "To that end, we have taken on a financial partner to allow us to grow our business substantially through acquisition and the installation of new equipment."

Zalev Brothers, he reports, is currently building an $18 million mega-shredding plant in Windsor. The plant, which should be ready by late spring/early summer, will house a $10 million, 6,000 hp dual megashredder.

"We also have a couple of new acquisitions in Ontario on the drawing board," Zalev says. "We are not planning on expanding our work force but we are expanding our capacity to be able to grow and develop new markets in Canada and the United States. The scrap industry here remains very competitive. It is a real dog fight for market position."

Although the market for ferrous scrap is fairly strong, Zalev says, the nonferrous side continues to deteriorate and the market for both continues to decline from their 1995 peak when the total trade reached over five billion tons valued at just under $3 billion Canadian.

"We expect to see improvement later this year," Zalev says.

Jack Lazareck agrees that the ferrous side is all right. "Most mills in western Canada are still busy," he says. "They still have a lot of orders and big stock piles. In the east though, prices are starting to fall."

ASIAN FLU TAKES HOLD

Lazareck blames much of the malaise that the industry is feeling on the "Asian Flu." "It is a matter of supply and demand," he says.

"There is a lot of movement of material but prices are down. Aluminum is holding its own but copper metals and stainless steel prices have plummeted by 40%. When you are not used to a slow-down, when it has been four or five years of go, go, go, it can get a little depressing. We have to live with it," Lazareck notes.

SCRAP BATTERY SHORTAGE

One area where there is a real shortage though is in scrap batteries. The shortage is worldwide, notes Jose Silva, vice-president of marketing for Tonolli Canada Ltd. in Mississauga, Ontario.

The reasons are twofold, he says. On the one hand, a number of primary smelters that in the past relied on ores and minerals have shifted a portion of their capacities to recycling scrap batteries. The increase in demand has been exacerbated by two mild winters in a row, which has decreased supply.

"In the last year," says Silva, "the price for scrap batteries has gone up from 5 cents U.S. a pound pick-up to 8.25 cents U.S. a pound pick-up. Because the supply of raw materials is so low, we have slowed down to five days a week."

Silva sees some relief in sight soon though. Although the moderate weather has increased the life of car batteries, they have to give out eventually, he notes. He expects to see an increase in supply by the end of the summer.

ON THE MUNICIPAL SIDE

On the non-scrap metal recycling side, the provinces of Ontario and Manitoba are the leaders in the development of comprehensive municipal recycling programs. Manitoba, a west-central province of about 1 million people, introduced a 2-cent levy on all beverage containers on January 1, 1995. The provincial government uses the monies collected- $6 million Canadian last year – to fund municipal and school recycling programs throughout the province. The province pays 80% of the cost of the programs.

In Winnipeg, the provincial capital - with a population of 650,000 - Canadian Waste, a private contractor, operates a comprehensive, city-wide blue box program. The company sells the material collected with the city paying out a per ton fee determined by how the fluctuation in the price of the materials.

"When the program was rolled out in Winnipeg three years ago, fiber prices were at a record high," says Jim Fogg of the Manitoba Product Stewardship Corporation, which is charged with distributing the funds raised from the bottle levy. "Now newspaper, box board and corrugated cardboard have returned to their historic levels. PET is up and down in value while aluminum and steel are constant."

Ontario, Canada’s most populous province, has a mandatory blue box program (Winnipeg’s is optional) for all communities with populations in excess of 5,000. Very few Ontario municipalities deliver recycling services using their own workers, Fogg says. All the companies collecting the recyclables work on a per-ton per-house fee.

A city-wide beverage container deposit and return system is also being proposed in Toronto.

Three western Canadian provinces all use deposit systems on beverage containers, Fogg notes, but, in terms of community recycling programs, there is no overall financial support or direction. Each community is on its own. Saskatchewan, the province bordering Manitoba on the west, uses the money from bottle deposits to fund sheltered workshops.

Quebec also has a deposit system and a blue box program, Fogg says, while three of the four small Maritime provinces along the east coast have a half-back deposit system whereby the consumer pays a dime and gets a nickel back. Prince Edward Island, Canada’s smallest province, insists that all beverages purchased must be taken home in refillable containers.

NEGATIVE STIGMA

On a positive note, a Hazardous Waste Task Group, appointed by the Canadian Council of Ministers of the Environment (Canada has ten provincial and one federal or national Ministers of the Environment), has been working for the past two years to redefine "waste" and recommend changes to the regulatory movement of "hazardous waste."

The CCME recognized that a negative stigma is associated with the term "waste" when applied to recyclable materials and that hazardous waste movement controls may not always be appropriate for all recyclables that exhibit hazard characteristics. The CCME Task Force has recommended that the term "waste" not be applied to recyclable materials and that certain listed recyclable materials be exempted from leachate testing. This means they would not be regulated as hazardous and may be transported under normal commercial regulatory controls.

While the recommendations apply only to domestic movement of recyclables at the moment, there are efforts being made to have their scope broadened to include international movements as well. The changes, it is hoped, will encourage more recycling activity by alleviating some of the regulatory burden. They will also ensure environmentally sound recycling.

The author, based in Winnipeg, Manitoba, writes frequently on the Canadian scrap and recycling industries.

Sidebar

Trading Up

NAFTA has—at times—had its share of critics, but few of them can be found at the Windsor-Essex County Development Commission.

The Commission’s staff members and board members (among them Dean Zalev of scrap processor Zalev Metals Inc., Windsor, Ontario) credit that agreement and the resurgence of the North American auto industry as primary reasons for Windsor’s economic prosperity in the ‘90s. According to Roman Dzus, the organization’s deputy development commissioner, "the Windsor-Detroit gateway is the hub for nearly 40 percent of U.S.-Canada bilateral trade generated by the economic interplay of the U.S. Midwest states and the southern Ontario heartland."

Tying into that, "nearly all of Canada’s $15 billion annual merchandise trade surplus with the U.S. is accrued from trade in auto and auto-related products," says Dzus. While high-tech industries, agribusiness and gaming also have a place within Windsor’s economic picture, the border-straddling automotive industry remains a key to Windsor’s future, according to Dzus. "Windsor’s proximity to the U.S. border opens the doors to strategic international transportation and trade corridors. The U.S., the most powerful and richest economy in the world, buys 80 percent of Canada’s exports."—Brian Taylor

A Recycling Paper Trail

The forests of Canada have long been home to mills producing paper, tissue and cardboard boxes for export to worldwide markets. And for just as long, they have been major consumers of recycled commodities even before the word recycling was coined.

The Canadian Pulp and Paper Association (CPPA), Montreal, notes that used linen and rags were collected for consumption by Canada’s first paper mill, which opened in 1805 in St. Andrew’s, Quebec. Today, more than 60 major mills in Canada are consumers of secondary fiber.

In 1996, Canadian mills consumed more than 4.5 million metric tons of old newspapers, magazines, cardboard containers and other grades of paper, according to the CPPA. While 53% of the consumed scrap paper came from within Canada, the balance was imported, with the vast majority of it coming from the U.S. The scrap paper tonnage consumed by Canadian mills has increased significantly since 1980, when just over 1.1 million metric tons of secondary fiber was consumed.

The presence of the mills in Canada has provided ready markets for scrap paper generated domestically. The CPPA estimates that its industry recovered approximately 45% of the scrap paper generated in Canada in 1996. The resulting new newsprint, office paper, tissue, and boxboard then helps Canada in the international marketplace. The CPPA estimates that 74% of the paper products made in Canada are exported to the U.S. and other countries.—Brian Taylor