Editor's Letter - Victims of Success

Dismal business conditions beget one set of problems, but business owners also seem to discover that positive conditions can produce a different but equally unwelcome set of problems.

More than mere chronic complainers say a thriving industry sector is creating a "gold rush" effect. This symptom introduces new forms of competition, causing turmoil that can blindside even a well-prepared business owner.

The twin forms of "green" at work in the recycling industry—profitability and a clear role in a perceived emerging sustainable economy—have served to attract investment capital that seemed unattainable a few years ago.

Earlier this decade, a company like Nucor that used scrap materials had a very difficult time gaining favor during the Internet bubble. Even with its technological innovations and recycling story to tell, Nucor was considered "old economy," a label that along with "basic materials" did little to excite investors looking for the next Microsoft, Cisco Systems or Google.

Several years later, many basic materials producers have gone from being on the bottom rung of a supply chain to the enviable position of producing materials sought after in a supply-deficit climate.

Similarly, recycling trade associations that used to worry about recycling becoming an afterthought in the national consciousness now struggle to keep up with the many ways their industry ties into a range of environmental issues that are attracting national and global attention.

Investment funds and institutions looking for returns have noticed these changes, and money has been flowing in large amounts into recycling and basic materials.

For small recycling companies that wish to stay independent, this has added new layers of competition that can appear intimidating.

In the scrap metal sector, Nucor and Steel Dynamics have entered the scrap industry not by dipping a toe in the water, but by jumping in cannonball style. Also, steelmakers Gerdau and CMC retain a considerable presence in the scrap market.

Competing with larger companies is not new for small and mid-sized scrap firms.

The lofty prices in today’s market, however, may provide the bigger players with one advantage: access to sufficient credit and cash to purchase material up front and collect on it a little later. For smaller recyclers, having lags in cash flow when the numbers get this large can become a competitive disadvantage.

But entrepreneurial zeal is not easily suppressed. That zeal is being tested right now not by an industry that is struggling, but by one that is trying to cope with its current success. There seems no reason to believe that the entrepreneurs will raise a white flag and surrender. Instead they will survive and thrive.