Custom Processors Cook Scrap Right

Extra care in preparation equals extra profits in the custom scrap market.

Just like hungry kids going to Burger King, many foundry operators need to get the items they are consuming produced "their way." The business of custom processing scrap has been around for years. But as specialty markets grow, so does demand for specific grades of scrap, greater purity content for recycled metals and increased custom processing of materials.

"It’s like the difference between a regular restaurant cook and a gourmet chef," according to Arnold Gachman, president of Gachman Metals & Recycling, Fort Worth, Texas. "Anyone can grill a steak and potatoes. But it’s tough to do a souffle — you have to know your ingredients and be aware of what you’re doing."

In fact, one of the first difficulties a custom processor faces in meeting demand is finding out what the ingredients are in the metals being recycled. If an order comes in for low sulfur, low phosphorus material and there is T1 or AR plate in the mix, you’ve destroyed the product. Discovering foreign materials often can’t be done visually. Materials need to be source-segregated. Basic alloys, particularly in ferrous scrap and composites, create a real problem with quality control and compatibility.

The key to success, however, is providing customers with what they want and doing it to their selective specifications.

It has taken years for mills to build up confidence in what processors are doing with direct melts and custom blends, according to Ed Summerlin, nickel trader for National Nickel, Greenville, Pa. National Nickel has been doing direct melts for 15 years, but it is only in the last five to seven years that demand has really perked up. The firm primarily is a processor of stainless and high-temperature alloy, buying material worldwide.

"The customers specify what blend they want," Summerlin says. "We’ll put together a 304 (stainless) or 316 (corrosion resistant) blend to the customer’s standards. The mill then buys our custom prepared scrap at a discount to the primary metal.

"It works well since they know what is going into their furnace, so they have a good idea of what they will come out with and don’t have to worry about residuals," he explains. "It takes the worry out of the melt."

According to John Kis, vice president and general manager of Intermetco, Ltd., Hamilton, Ontario, the question of whether supply of product or demand for it drives the market is moot. "It develops from dialogue between the consumer and the supplier about what was necessary to fill certain needs," he says.

Questions about the requirements and the grades of product which will suit their specific purpose are dealt with mutually, keeping in mind restrictions and capabilities.

While Intermetco has been doing specialty grades for 20 years, the market continues to develop. Some foundries need material absolutely free of foreign alloys in the steel; others prefer some alloyed scrap. "It’s a matter of what their product is," Kis says.

The iron and steel market is one of the more straightforward segments of the scrap industry served by specialty producers. Number One bundles, or Number One heavy metal or structural steel is good for most mills. There are general grades used for shredded ferrous material. Some mills want their metal prepared in a special way, but that really does not constitute custom processing. However, in the ferrous area, the foundry market often demands specialty grades.

Various foundries can use cast iron, structural, or specialty balled scrap. This latter is a special item which is prepared to the foundry’s specifications with special chemical analysis.

"We are finding that most producers, large and small, are trying to develop a product with consistency and good quality control," notes Gachman. He points to the emergence of the ISO 9000 standards on the world market and to the total quality management processes being followed by auto makers.

"The world is drawing closer on reliability of quality and meeting tolerances," he explains. "Both the consumer and producer have to work together to control systems, particularly in the export and other world markets."

Nathan Rosenmutter, who has been doing business in the Chicago area for decades as Nate Rose, uses two shredders to cut sheet iron, Number Two steel and clips. He blends the result. About 20,000 to 25,000 tons per month of the product are produced for a steel mill. Virtually all of the material he produces goes to one buyer, an electric furnace mill, which assures him a ready market for the yard’s output.

The 80-year old Rose has been in the business for all of his life; with tongue-in-cheek, he claims to have been "born on a bale of rags." But he is not resting on his past success. He currently is planning to add shears and increase production to 40,000 to 50,000 tons.

"Most of the uniform, heavy steel scrap that comes off the shear will go right into a shredder for foundries," says Rose. This material -- all low-residual scrap -- is produced to the foundry’s specification. Lower grade products such as rebar are segregated and put through the shredder only.

Of all the tonnage Rose handles, only 800 to 1,000 tons per month — mostly shafts and gears — cannot go through the shears. "Our shrinkage is not like automobiles which can run 30 percent," Rose says. "We run between seven and 10 percent shrinkage. We don’t make fluff," he adds.

Angles, rails and beams up to 12 inches by 12 feet long are mixed with the sheet iron and balled scrap. The machines are maintained every night. Good maintenance assures that the machinery will be ready to work another eight to 12 hours per shift the following day.

In addition to a sizable amount of copper and aluminum sheet, they see both red brass and yellow brass tubing. Instead of tying up manpower for the primary sort, they use the machines to break up all the metals and let the hand-labor concentrate on picking out other materials.

One of the oldest and largest nonferrous custom processors in the country is Thalheimer Brothers, Inc., Philadelphia, Pa. In business since 1939, the company specializes in red metals and nickel alloys for the nonferrous foundry industry, specialty industry, powder plants and other specialty consumers. "We specialize in custom packages for all of them," says John Thalheimer.

"We don’t buy across the scale. We buy only specialty products either from manufacturers, wreckers, or dealers who accumulate special packages for us," Thalheimer says.

A number of items come from those dealers who keep a "Thalheimer Corner" in their yard. When they get certain materials, they stockpile them until they get a truckload and then send six or ten loads of the type of items the specialty operator consumes.

"We have 400,000 square feet of storage here on 20 acres," Thalheimer says. "All of it is filled with nonferrous metals."

Perhaps the most common of nonferrous materials that comes out of yards is aluminum. World aluminum markets have been in upheaval after a Memorandum of Understanding was signed in early 1994 limiting worldwide aluminum production. However, demand for aluminum is strong. In early March scrap prices were only about 10 cents off all-time highs. According to ISRI estimates, purchased aluminum scrap totaled 3.9 million tons in 1994, 7 percent above 1993. If those preliminary figures prove accurate, scrap’s share of the market will have fallen slightly last year to 40 percent, compared with 1993’s share of 41 percent.

Most aluminum secondary smelters have a variety of grades they produce. "Automotive grades, the 380 alloy, is the bulk of production," Kis notes. "But specialty items, for aluminum casting in medical machinery, is moved at 50 tons per month instead of 5,000 tons per month. The price has to reflect the much lower volumes we handle. There is a margin built in for such products. You’re talking about longer lead times, inventorying the material, smaller production runs. The regular volume market forces have to be reflected," he continues.

Storage space usually is not a major problem at most yards. But it depends on the producer. "Some people do not want to bother with small lots, even though the margin is higher. Their philosophy might be to stick to volume. You have to account for individual preferences," Kis says.

"Anybody who is selling nonferrous materials finds tighter specifications," Gachman says. "The real question is the type of consumer being served." He notes that a can buyer likely is setting quality, moisture and density standards for the materials they will buy. "Many have zero tolerance for foreign materials. We’ve seen rejection for any visible moisture, although 1 percent or 2 percent tolerance is more typical."

Large buyers, like Alcoa, have moisture specifications that cover oil, solvents and general wetness. "The problem is that not everyone is making the same product. What is acceptable to one buyer is totally not acceptable to another," Gachman says. "As a scrap dealer, you can have the correct metallurgy in a sample. But you might find the material has a plastic coating. Or ink. So it becomes unacceptable to the buyer."

Tramp elements, like lead solder, will often cause rejection of a load. That can be expensive and frustrating to a scrap dealer who put in time and effort to segregate a load only to find out that it falls short of the buyer’s specifications.

Thalheimers uses an outside lab for chemical analysis to make sure the quality is what is required.

Rose is fairly confident about the market outlook and is making the cash investment to stay with the market.

There are sizable dollar differentials paid to recyclers who are willing to control the quality of the materials they ship. While a firm using a 100-ton furnace has a lot more leeway in making "additions" to material to be sure it meets specifications, a smaller outfit using a five-ton furnace probably has better control over what is going into the mix.

In Canada, there are concentrations of foundries scattered in different areas of the country. In the regions where the automotive industry is dominant, like Southern Ontario, there is likely to be more demand.

Thalheimer is also bullish on the market. "The United States economy is doing fine. The other economies of the world — the European and Asian markets — are just starting to open up," he says.

Likewise, National Nickel’s Summerlin sees good demand and a fairly tight supply of scrap across the next several months. While noting that much of the market for primary material is controlled by speculators and funds on the London Metal Exchange, he says the demand for the mainstay 304 material from stainless mills is good. There may also be some additional strength in the demand for corrosion-resistant materials.

"Our mills tell us they are going full-out for all of 1995," he says. "Business is so strong that some slowdown is bound to happen, but right now order books are full for the year."

World markets are important in high-value items like nickel and its alloys, but the stainless market tends to be more regional because of the cost of freight. In addition to trucking, the overall concern with quality of the material produced will be a key to success in this market.

"In general," Kis says, "quality control is going to be more and more crucial for anyone who wants to do business in the specialty grades. "

Kis also says environmental concerns are going to be more crucial for producers in the future. Foreign elements like oil coating on scrap, which can create pollution, will have to be eliminated.

For those who are in the industry and are willing to work to meet the stringent standards required by buyers, the long-term prospects for custom processing are good.

The author is an environmental writer based in Strongsville, Ohio.