Eastern Star

Although "all scrap is local" may continue to be an applicable adage on the generating side, there is little question the saying no longer applies concerning consuming destinations.

"Right now, scrap can move long distances at a very, very competitive cost. With today’s various modes of transportation, you can move scrap very long distances for about the same cost that it takes you to move it across town," says Michael Collins of Metal Management Ohio Inc., Cleveland.

"We can move scrap out of Chicago down the river by barge for about the same cost that it takes us to put it on trucks and move it to another part of Chicago," he remarks. "It oftentimes works well for the consuming mill if local scrap is available. But, it doesn’t always work in reverse. A local consumer is not necessarily important to the scrap processor."

GLOBAL CROSSING. While scrap has been shipped overseas for decades, the growing significance of China as a scrap-consuming market has raised the profile of exporting. "[China does] not have there the industrial base that generates scrap metal, and their demand for steel will do nothing but continually increase as they modernize and develop more and more manufacturing," says Collins.

"One of the reasons why the Unites States has so much scrap availability is that we’ve already gone through the industrial revolution," he continues. "Also, a major aspect of both the U.S. and the European markets is they provide sophisticated collection methods for the various scrap materials. But, within China, there is [little] internal supply; they have no sophisticated scrap collection methods. So, they have to import scrap to make their new steel."

Many economic forecasters see China’s appetite for metals continuing. "I’ve heard other people say that, by 2010, the demand for steel in China will exceed the entire world’s production as we know it today. Clearly, the demand for scrap to feed that (new steel) will be enhanced also," Collins remarks.

"Eventually, by 2010, there should be more scrap generated in China itself, and the collection processes will get more sophisticated. But, should China’s growth be sustainable, the world demand for scrap will continue to be very, very strong – for some time yet," Collins predicts.

Collins is hardly alone with his focus on China’s market. DaimlerChrysler CEO Jürgen E. Schrempp was quoted in the New YorkTimes this fall as saying, "By 2013, China will become the world’s second-largest car market after the United States – accounting for 8 percent of sales."

At least two implications for the North American scrap industry present themselves:

• After World War II, the focus of American manufacturing shifted sharply from predominantly domestic markets toward export markets. Domestic scrap indus-
tries have had significant export markets since at least the late 1940s, when U.S. Naval vessels were broken up for scrap and sold to Japan. It now appears an acceleration of that focus – driven by China – may be taking place in the scrap industry.

• Profit margins can change, depending on a company’s location. Dealers
in the Midwest – away from deep water ports on the Atlantic, Gulf, or Pacific coasts – would prefer to have their consuming markets on the North American continent. Still, they will benefit from new Chinese business. Even if they’re not the first to touch the scrap, they’ll get their "piece" of the profitable market generated by the transactions.

NO TIME TO BARGAIN. On the home front, over the past two years, both management and labor – each in their own way - have been struggling with the consequences of a depressed economy. Now, several economic indicators suggest the economy is starting to turn around. Human nature being what it is, one might suspect that, as labor contracts come up for renewal in 2004, both management and labor might strive to make up some of the losses they sustained over the past two years.

With 2004 being a presidential election year, might it also turn out to be a very contentious year for labor relations? Very few observers are predicting the types of wide-scale business interruptions rising out of labor strife in the auto or steel industries that have occurred in prior decades.

The entrance of several non-union companies into these industry sectors is one important factor. "If they want to strike an automobile plant, they would strike (only) one of the ‘Big 3’. The others would be operating anyhow," notes Michael Coslov, Tube City Inc., King of Prussia, Pa. "Plus, you have a lot of foreign-based companies operating in this country that are non-union - like Honda, Mercedes and BMW."

Similarly, in the steel industry, the rise of non-union electric arc furnace mini-mills has diffused the power of steel worker unions. "There won’t be [the former] impact because you have the mini-mills," Coslov comments. "The steel strikes were important back in the ‘50s and ‘60s – when U.S. Steel and Bethlehem dominated the industry. But now, with Nucor large as it is, the mini-mills have some 55 percent of the production, and [work stoppages] don’t mean anything. For those directly involved with some of these places, yes, they’d be hurt for a while. But scrap finds its way elsewhere," says Coslov, noting that the export market would likely remain available.

Collins says both unions and the companies that employ union labor are keenly aware of their situation. "I think that the unions and management (now) are much more sophisticated than they were in the past," he remarks. "I think the unions are very sensitive and very much aware of the economic times and know there’s not a lot to be gained. The stakes are too high, one might say. So I do not think there will be any major nationwide disruptions. There may always be an isolated situation – like DaimlerChrysler experienced at the Jeep plant in Toledo, Ohio, but I don’t think there will be a nationwide automotive strike or work outage."

As did Coslov, Collins remarked that corporate executives at steel companies and their union counterparts faced similar constraints. "I think that in the steel industry, again, people now are a lot more sophisticated. The steel industry is not healthy today. The president of the United Steel Workers is working very closely with management today," he commented. "And I think the union’s management and leadership are very much aware of that, and thus I think they’ll work very closely to keep their people employed (without any) work stoppage. There’s too much competition, worldwide. The minute they‘d go on strike, the material would continue to flow in from other parts of the world and permanently damage the industry."

The author is a Cleveland-based freelance contributor to Recycling Today who can be reached at bennagler@sbcglobal.net.