Editor's Focus

I have heard an identical thought—phrased in different ways—expressed repeatedly lately. The view tends to come from scrap industry veterans and it states something to the effect of, “be prepared for the down cycles, because they are inevitable.”

By being prepared, these veterans of earlier price troughs most often point to holding onto significant cash reserves. (“Don’t spend it all on the way up,” is the way one processor phrased it.) During a down cycle, they point out, the cash flow situation can quickly turn bleak.

In 1997 and early 1998, a handful of fast-moving industry consolidators were rolling up scrap companies and creating highly leveraged national entities. Even as the momentum appeared unstoppable, there were a handful of skeptics warning that there were potential flaws in the game plans of these aggressive consolidators.

It is far too early to declare the skeptics victors, but at least one criticism seems to have been borne out: Wall Street’s demand for consistent quarterly profits may well be at odds with an industry centered around elastic commodity pricing. (The public companies might contend that analysts and investors just need to be “educated” or “trained” as to the fluctuations of the scrap market.)

To many small cap investors, large cash reserves are large piles of money that should be “working” harder, i.e. being spent on acquisitions and capital improvements. For a high-tech firm or a trendy retailer, that may be true.

But scrap industry veterans might warn that during a price trough in their business, large cash reserves can make the difference between opening up the scale house for business as usual or watching your equipment go up for auction.

They can’t remember a quicker plummet in pricing, most ferrous scrap traders have said regarding the price drop that took place in the second half of 1998.

It has been a frustrating feeling for North American steelmakers and scrap processors, because the primary cause of their woes lies overseas. While many steel and scrap companies may have enjoyed the benefits of the global economy earlier in the decade, the downside has become apparent as slumping Asian economies cause havoc in the metals commodity markets.

Our cover story this month takes a look at the dumping of foreign steel into American markets, and whether the U.S. should have tried to build barricades against the onslaught.

Paper recyclers did not enjoy the second half of 1998 much more than metals recyclers did. In this month’s Commodity Focus, RT senior editor and Fibre Market News editor Dan Sandoval takes a look at recent pricing and demand movements within the major paper grades.

Our Transportation Focus, authored by former RT editor Anne Claire Broughton, examines the U.S. inland waterway transportation system. This series of rivers and canals has seen more scrap metal barge traffic this decade as several steel mini-mill operators locate their new operations on the river network to take advantage of this affordable method of shipping scrap.