Crossing Over

More than a few veterans of the scrap metal business are fond of the saying, "All scrap is local." The statement makes the pertinent observation that unless someone is paying close attention to seek out customers and spot and service containers in very specific (often small) locations, the rest of the scrap supply chain cannot move forward.

However, the increased globalization of supply lines and shipping patterns and the continued consolidation of scrap-consuming metals producers appear to be factors prompting a new round of merger and acquisition activity within the scrap industry.

TOP-LEVEL MEETING. When America’s Huge Neu Co. merged into Australia’s Sims Group Ltd. in 2005, that was considered to be the scrap merger affecting the largest amount of North American processed tonnage up to that point.

At that time, the companies were considered to be two of the 12 largest ferrous scrap recyclers in the United States, and the combined company’s tonnage probably helped boost it into the top three.

As significant as that merger was, it has been dwarfed by the announcement made in late September of 2007 regarding the merger of Metal Management Inc., Chicago, into Sims Group.

Each of those companies separately was among the five largest (perhaps even among the three largest) ferrous scrap recyclers, and combining tonnages will create a clear new No. 1 in the scrap market. It is also a combined company with considerable exporting capacity on both the Atlantic and Pacific coasts of North America.

Under the terms of the proposed agreement, former Metal Management shareholders will receive stock in Sims Group Ltd., and former Metal Management locations in the United States will operate as Sims Metal Management.

"Sims shareholders will own approximately 70 percent, and Metal Management shareholders will own approximately 30 percent of the combined company," according to the news release announcing the merger.

The combined company will have a presence on four continents at more than 200 locations. By its own calculations, the merger creates the world’s largest publicly traded recycler, annually processing and trading more than 15 million tons of metal with revenue "in excess of $6.8 billion based on the 12 months ended June 30, 2007."

Metal Management’s board of directors unanimously approved the merger. "Bringing Sims and Metal Management together accelerates both companies’ strategic plans and creates a clear global leader with unparalleled infrastructure, talent and financial resources," Metal Management CEO Daniel W. Dienst says.

Jeremy Sutcliffe, CEO of Sims Group, remarks upon what he considers to be a good match of non-overlapping assets. "In addition to bringing together the complementary assets, geographic coverage and outstanding management teams of both companies, this combination unites two very similar corporate cultures that share a strong commitment to safety and the environment," says Sutcliffe.

Specifically, while Sims has a leading market share position in Australia, New Zealand and parts of Western Europe, it had previously been behind at least Metal Management and OmniSource for ferrous scrap market share in the United States.

The combined Sims Metal Management will have its headquarters in Australia while maintaining executive offices in New York and Chicago. Former Metal Management executives Daniel Dienst and Robert Larry have been given new titles and will remain with the combined company with leading responsibilities in North America, according to its news release.

ANOTHER VOLLEY. Scrap recyclers had slightly more than one week to digest the Sims-Metal Management news when one of North America’s other largest scrap companies announced news of its own.

On Oct. 1, steelmaker Steel Dynamics Inc. (SDI), Fort Wayne, Ind., announced the acquisition of OmniSource Corp. OmniSource is most likely the second-largest ferrous scrap recycler in the United States, ranked behind only the newly combined Sims Metal Management.

Previously a closely held corporation owned predominantly by members of the Rifkin family, OmniSource will now become a subsidiary of SDI, a 14-year-old publicly traded company with electric arc furnace steelmaking as its core business. In its relatively brief existence, SDI has grown to become the fifth largest carbon steel producer in the United States.

Under terms of the agreement, which has been unanimously approved by

OmniSource will operate as a wholly owned subsidiary of SDI and will continue to focus on ferrous and nonferrous scrap processing and brokerage. SDI’s existing scrap operations in Virginia and Tennessee will be consolidated into OmniSource, as will its planned scrap processing facility in Indianapolis, Ind.

OmniSource President and CEO Danny Rifkin will continue to lead the OmniSource organization with an SDI executive vice president title and a seat on the SDI board.

Comments from SDI chairman and CEO Keith Busse indicate that SDI will use its access to capital as a public company to seek additional scrap processing assets and market share. "Aside from the fact that scrap is a critical resource for our steelmaking operations, and Omni has historically been one of our largest suppliers, this acquisition opens the door for further profitable growth in a sector of increasing relevance on a global scale," says Busse.

Based on 2006 figures, SDI produces about 4.7 million tons of steel per year. OmniSource Corp. shipped approximately 5.3 million tons of ferrous scrap and almost 900 million pounds of nonferrous metals in its most recently completed fiscal year.

The major moves by Sims and SDI involve the most scrap tonnage among recent announcements, but the two transactions hardly stand alone. Other scrap industry mergers or acquisitions in 2007 are also affecting regional, national and global market share, including:

• European Metal Recycling (EMR), based in the United Kingdom, has been acquiring scrap companies and facilities in the United States in the past two years. Its string of acquisitions has created a portfolio of operations in the Gulf Coast region, Minnesota and New Jersey.

• St. Louis-based Alter Trading has continued to expand its presence in the Midwest with the acquisition of Wisconsin’s Samuels Recycling and other purchases. Alter has also moved beyond its Midwestern base with the acquisition of Ben Shemper and Sons, a scrap processing company based in Mississippi, and the construction of an auto shredding plant in Alabama.

• PSC Metals, Cleveland, has added several Ohio facilities to its portfolio in 2007.

• The River Metals Recycling subsidiary of the David J. Joseph Co., Cincinnati, also acquired several Ohio scrap processing plants earlier this year.

• Ohio was also the site of the most recent acquisition by Detroit-based Ferrous Processing & Trading (FPT). The company acquired Cleveland’s M. Weingold & Co. this year.

When Recycling Today updates and re-publishes its list of the 20 Largest Ferrous Scrap Processors in the United States in the spring of 2008 (the list is published every two years), the names and the tonnage figures will be much different from what appeared in 2006.

BIG PICTURE. While the scrap industry mergers affect the flow of many tons of scrap material, the past 12 months have also witnessed metals industry mergers of broader global proportions.

The mining and production of virtually every major mineral and metal has seen efforts toward market share consolidation in the hands of a few large stakeholders.

Among the recent examples is the $38 billion acquisition of Alcan by Rio Tinto, bringing together two already massive metals companies.

Scale is not a requirement for a company to be profitable and well managed. Nonetheless, aggressive growth by companies throughout the metals production and supply chain is causing smaller operators to scrutinize whether they can compete in the niches and roles to which they are accustomed.

The author is editor in chief of Recycling Today and can be contacted at btaylor@gie.net.