Compete and consolidate

For more than a decade, Recycling Today has reported continuous growth in the number of auto shredders installed in the United States in our biennial auto shredder list. That news has been met with overcapacity concerns by some in the industry, which continues to be the case. Several industry sources and representatives of shredder manufacturers say competition for material remains intense, and some shredders are changing hands or being idled as a result of the competitive environment.

Scott Newell, CEO of The Shredder Co., based in Canutillo, Texas, says the U.S. saw considerable capacity additions throughout 2013, while 2014 has seen some capacity reductions.

Newell is the son of Alton Newell, who patented a number of auto shredding innovations in the late 1950s.

“During 2014, there have been less new shredders started than shredders closing,” Newell notes.

Danny Rifkin, CEO of MetalX LLC, Waterloo, Indiana, agrees with Newell that, at least on a macro basis, the market seems to be rationalizing capacity. “I don’t think shredders are adding capacity today; I think shredders are actually closing,” he says.

Rifkin explains how a combination of a downturn in the nation’s economy paired with industry consolidation that has occurred over the past several years has created an environment “where there has been a desperate move toward volume without regard to whether that volume makes any sense.”

Operators who are running their shredders merely for volume are setting the market for everyone else, he says. This, Rifkin adds, has kept pressure on the profit margins for shredder operators today.
 

The state of shredding

More than 40 auto shredders have shut down and are no longer in operation since Recycling Today last published its auto shredder list in 2012, which we update every two years. Of those closures, nearly 90 percent represent shredders with rotors measuring 104 inches in width.

We have identified 297 shredder installations in the U.S., with three of those operations currently idled. Five shredders not included in that total figure are proposed installations.

Including shredders located in Canada as well as in Mexico, the shredder count in North America jumps to 325.

Our 2012 list identified 292 shredders; however, 20 of these shredders were idle then and seven were proposed.

The shredders in operation today range in size from relatively small,“mini” 1,000-horsepower models to 10,000-horsepower “mega” shredders. Sources say mini shredders are more commonplace today, as the larger auto shredders typically did not run at 50 percent capacity, let alone at 100 percent capacity.

Texas again tops the list in 2014 with 26 shredders. While the state lost four shredders to closures over the past two years, the cities of Brownsville and Houston each house three shredders.

With 16 shredders each, Ohio and Florida share the No. 2 spot for the largest number of auto shredders. The Ohio cities of Canton, Columbus and Toledo are each home to two shredder installations.

Pennsylvania dropped to third place in 2014, with 15 shredders in operation.

New York had the most shredder shut downs, with six shredders no longer in operation throughout the state.

Regionally, the Northeast saw the most closures, with 13 shredders shuttered.
 

More than a machine

One factor contributing to the large number of shuttered shredders on this year’s list, sources say, was the number new auto shredders installed in recent years, further increasing overcapacity.

“Smaller or midsize dealers trying to survive or grow their businesses were convinced that even a small shredder was a pretty simple investment,” Rifkin says, adding, “when in reality even the small shredders are a $4 million investment.”

However, opening an auto shredder requires a commitment from scrap metal processors that extends beyond the shredder’s purchase, Rifkin says, noting additional equipment expenses and higher working capital requirements.

He adds, “Very few people really got the whole picture in terms of maintaining the shredder, and the equipment turned out to be a lot more than people bargained for. That’s why people struggled with the physical operation.”

Consolidation also is occurring, says steel industry veteran John Harris, CEO of Canada-based metals sector information service Aaristic Services Inc. “A big steel operation will buy a shredding operation, shut it down and take its shredder feed to others so they can operate more efficiently,” Harris says.

Interviewed for our October 2012 feature “Too Much of a Good Thing,” New Carlisle, Indiana-based 360 Degree Metal Recycling owner Randy Schlipp said the 4,000-horsepower, 80-by-104 American Pulverizer shredder his company installed that year at a greenfield site would be a success. Schlipp said his company had many feeder yards that would help to supply feedstock for the auto shredder, which sits on 26 acres and includes a downstream sorting system.

However, the metals recycling company Scrap Metal Services LLC (SMS), based in Chicago, acquired 360 Degree Metal Recycling’s auto shredder and full-service scrap metal facility in New Carlisle in September 2014.

SMS, which was founded in 2005 by Jeffry and Richard Gertler, says the newly acquired facility is strategically located, allowing SMS to cost-effectively transport shredder feedstock from its nine Northwest Indiana and Chicago retail facilities and auto parts operations. The once idled shredder is running again under the ownership and management of SMS.

Jeffry Gertler, SMS CEO, says his company has been searching for a major auto shredding operation near Chicago or in northern Indiana for some time, primarily to process its growing shredder feedstock.

“Rather than add another shredder in this highly competitive marketplace, acquiring an existing shredding operation in the area, which met our company’s environmental standards, was economically prudent and strategically a good fit,” Gertler says.

In July 2014, Newell Recycling of Georgia LLC, headquartered in East Point, Georgia, announced a merger with the scrap metal recycling firm Blaze Recycling & Metals LLC, Norcross, Georgia. The combined company will be called Newell Recycling Southeast.

Newell operates 14 facilities in Georgia, including three mega shredders, while Blaze Recycling operated eight scrap yards in Georgia and Alabama. The company had two auto shredders running, one in Lawrenceville, Georgia, and the other in Phenix City, Alabama, both of which are now under Newell Recycling Southeast’s ownership. The company has not announced whether it has plans to idle any of these auto shredders in the future.

In addition, a look at our 2014 auto shredder list on page 79 shows various acquisitions by Gerdau, with North American headquarters in Tampa, Florida; David J. Joseph Co., Cincinnati; and SA Recycling LLC, Orange, California, among a number of other companies.
 

Continued competition

Intense competition continues to affect business, sources say. “Competition for raw material to shred is fierce in today’s conditions,” Newell says. He suggests shredder operators take in heavier steel scrap and additional types of mixed scrap.

Maintaining sophisticated shredders with nonferrous recovery systems also is valuable, Newell says. “The survivors will certainly need to have efficient … nonferrous systems to maximize the value gained by shredding,” he says.

In an August 2014 Recycling Today feature, “Calculated Outcome,” Mark Ridall, Northeast regional manager for Wendt Corp., Buffalo, New York, says nonferrous recovery systems are “essential to the profitability and success of an operation.”

He writes, “Because of rising costs, margins on the ferrous side of a shredding operation will continue to be compressed in the years ahead, which places an increased emphasis on nonferrous recovery opportunities.

“When it comes to shredder projects, failing to include nonferrous recovery equipment is planning to fail,” he adds.

While competition is “still pretty intense,” Rifkin says, the U.S. still has regions where opening a new shredder makes sense.

The author is associate editor of Recycling Today and can be reached via email at mworkman@gie.net.