All for One

Pacific Steel & Recycling, headquartered in Great Falls, Mont., has kept a relatively low profile over the years, quietly expanding its presence in the Mountain West region. The company, which was founded in the 1870s by German emigrant Joe Thiebes and was incorporated in Washington state in 1918 as Pacific Hide and Fur Depot, currently operates 46 branch offices in nine U.S. states and Canada. The company’s recycling division processes some 500,000 tons of ferrous and nonferrous scrap per year in addition to catalytic convertors and electronics. Pacific’s steel division also sells from 60,000 tons to 65,000 tons of new steel annually.

The company’s management team credits its success to its employee-ownership as well as to its diversified operations.

Benefits of Diversity
“We are unique in that we have a new steel division and a recycling division,” says Patrick Kons, vice president of Pacific Steel & Recycling’s recycling operations. “We work closely with the mills in that we are selling scrap or bringing scrap into those domestic mills on the back end, and we’re buying new steel products and selling for retail. It is good vertical integration with that business model and aligns us with domestic producers of new steel products.”

Ed Joyce, the incoming vice president of the company’s steel operations, adds, “Diversification is a good word to use as far as our business. It has helped us weather this tough economic environment being both in scrap and in steel.”

Joyce will replace Ed Leppien, who is retiring from the company at the end of the year.

Pacific Steel & Recycling’s steel division seeks to add value for its customers, Joyce says, as many of the products steel distribution centers sell have been commoditized. A large percentage of the tonnage leaving the company’s Coeur d’Alene, Idaho, facility involved some degree of first- or second-stage processing. Pacific recently acquired this facility, which has one of the largest press brakes in the western U.S. with a capacity of 1,500 tons, Joyce says.

Pacific Steel & Recycling President and CEO Jeff Millhollin adds that the company’s Coeur d’Alene plant also operates several plasma tables, a water jet and a laser multitool. He says the facility is largely geared toward plate processing and serves clients not only in the Northwest but also throughout North America.

“Our customers are under as much economic and regulatory pressure as we are in this business,” Millhollin adds. “If we can work to help them have less manpower out there or less equipment, then they are saving money.”

In addition to its two business segments, Pacific has diversified its recycling operations by adding catalytic convertor processing nearly four years ago and electronics recycling last year, Kons says. Its branch locations collect catalytic convertors, which are transported to a single location for processing. Electronics also are collected at the company’s branches and processed at a single location, which is certified to the R2 (Responsible Recycling Practices) standard.

“We went for R2 certification at the onset,” Kons says of the company’s electronics recycling facility in Nampa, Idaho. “We said, ‘We are going to do this thing right,’ and we put a lot of energy into it with our environmental compliance specialist and our branch managers.”

While Millhollin and Kons characterize the company’s electronics recycling business as off to a gradual start, Millhollin adds, “We are happy to have launched that business. We see that as a growing recycling stream in the future and there was a need in our footprint for that service.”

Pacific Steel & Recycling disassembles electronics by hand and operates a shredder on site for hard drives. Metal housings and other components from the devices are transported to Pacific’s auto shredder near Boise, Idaho, for shredding.

Matters of Geography
Transporting material long distances in the sparsely populated Mountain West can be considered a drawback of Pacific’s operating region, but the company’s management team also sees many benefits associated with its geographic coverage.

One such benefit is related to the growth in the energy and mining industries in the region. “When you have a stagnant economy, it is hard to move tons of new steel,” says Millhollin. “We are fortunate in our region that we have a lot of oil and gas activity and [mining] extraction activity.” He adds that activity in these sectors has benefitted Pacific’s new steel division as well as its recycling division. It’s also changed the company’s customer mix.

“Peddler traffic has been the mainstay of the business for many years,” Kons says. “All of the branches are set up for peddler traffic and they do a fair amount of that business.”

However, with the growth of the mining, oil and gas industries, Pacific has seen its industrial business grow, he adds.

Despite this regional activity, the business climate in the scrap recycling industry remains challenging. Kons says markets have contracted, compressing margins throughout the industry. “I would say it’s a combination of less available scrap and more competition,” he adds. “With prices dropping off, not as much scrap is being generated.”

Scrap industry competition has fueled some investments in Pacific’s recycling operations. The company is finalizing the installation of its second shredder, an 80/104 from Metso Texas Shredder, San Antonio, in Lockwood, Mont., near Billings. The installation also will include an upgraded downstream sorting system from Steinert, Walton, Ky., designed to improve the company’s recovery of nonferrous metals. Pacific Steel & Recycling also operates a shredder of the same make and model in Mayfield, Idaho, near Boise.

While markets were fairly strong in 2011 when Pacific decided to open a branch in Lockwood and install the shredder, the market has softened since. Kons says, “We will be challenged.”

The challenges relate in part to the sparsely populated region in which Pacific operates. (For instance, the population of Montana only recently passed the 1 million mark.) Kons says larger population centers in the Mountain West region can be 300 to 400 miles apart. “We have to reach a long way to get tonnage,” he says.

The company has recently invested in four Metso Lindemann LUC 1025 stationary shears for its operations; it used only smaller stationary and mobile shears in the past. The stationary shears, Kons says, “are all about efficiency and man hours per ton.”

In a region with dispersed population centers, transportation costs also have a considerable affect on the company’s profitability. Pacific Steel & Recycling has tried to address this issue through strategically locating its operations on railroad lines as well as by establishing a transloading facility on the Port of Tacoma in Washington.

Pacific’s operations are primarily served by one of two rail lines: the Union Pacific (UP) and the Burlington Northern Santa Fe (BNSF) and Montana Rail Link (MRL).

“We’ve placed the shears and the shredders in geographic and railroad locations so that we have the ability to ship internal tons between processing facilities based on markets and railroad rates,” Millhollin says. “We have two shears and a shredder on the UP and two shears and a shredder on the BNSF/MRL.”

Pacific opened its transloading facility roughly three years ago. Gondolas of scrap are shipped via rail to the facility, where the material is then loaded into containers for shipment overseas. Much of the material shipped from this location is zurik and zorba, however, Millhollin says quite a few ferrous tons also head overseas from this facility. In the last year, he estimates that 45,000 tons have been shipped through the transloading facility.

Perks of Ownership
While the current business environment presents many challenges to Pacific Steel & Recycling as well as to scrap recyclers and steel distributors in general, the company’s management team says its ownership structure offers a distinct advantage over its competition.

According to Pacific Steel & Recycling, the Thiebes family believed in sharing company profits with key employees, awarding them company stock beginning in the late 1930s. This program led to a profit-sharing program through which employees could purchase company stock. When the Thiebes family was ready to exit the business in the 1980s, the family allowed employees of Pacific Steel & Recycling to purchase the company through an employee stock ownership plan (ESOP). The purchase was finalized in the 1990s.

Pacific Steel & Recycling Vice President of Business Development Stuart Boylan says the culture that is created through employee ownership has contributed to the success of the company. “There is sense of empowerment and enthusiasm for the industry and the company,” he says. “The employees benefit directly as the company succeeds. This provides strong motivation for improved customer service and maintenance—they want to put their best foot forward as owners.”

While Boylan says employee-owners begin receiving shares in the company the day they start, Pacific uses a vesting schedule for its ESOP that the federal government established, with employee-owners becoming fully vested in their sixth year with the company.

Boylan says because Pacific Steel & Recycling has a lot to offer its employee-owners, the company’s turnover rate is low and its screening process is rigorous.

Because seniority leads to higher stock accumulation, roughly 75 of Pacific’s employees own 50 percent of the company, he says. However, Boylan adds, “All of our employee-owners are engaged and thinking about things to make us better all the time.”

This mentality extends to determining how to best navigate the company in the current economic and regulatory climate.

“We are very cost conscious,” Millhollin says of Pacific Steel & Recycling. “We are looking at reduction in overtime hours—manpower is your No. 1 cost. We are looking at efficiencies and have invested where we think we will get a bang for our buck on cap-ex material and equipment.”

He continues, “The bottom line is that we are trying to take care of business the best we can because costs are going up and prices are going down. It is a difficult scenario, and everyone is under pressure to drive profitability.”

The author is managing editor of Recycling Today and can be contacted via email at dtoto@gie.net.