Seeking Returns

There seems to be little doubt that the last four or five years there has been a ramped-up level of investment by scrap recyclers in new equipment.

Anecdotally, makers of recycling equipment ranging from shredders and balers to mobile material handling equipment have been reporting backlogs of orders to fill for several years.

Scrap recyclers seeking new equipment have come to expect that they may face a significant wait before the installation of new processing equipment or the delivery of mobile material handling machinery such as an hydraulic scrap handler.

Harris, Peachtree City, Ga., is one of the scrap industry’s largest and most well-established makers of processing equipment. Doug Sebastian, senior vice president of Harris, when asked if the company faces a backlog of orders, says, "Absolutely."

Depending on the type of equipment being ordered, "We’re into September 2009 in terms of delivery dates for big equipment," says Sebastian. "If you ordered a piece of big equipment from me right now, it would be September or October of 2009 for a delivery date."

He is quick to point out that the situation is not a commentary on Harris’ production methods or investments in manufacturing capacity, but that it is demand driven. "Three years in a row we have broken the record for orders and sales, and when a company has been around for 120 years, that’s saying something."

A consideration on the minds of recyclers trying to survey the competitive landscape is to what extent this new equipment is replacing older, worn-out machinery or to what extent it represents new capacity.

In the case of large ferrous balers sold by Harris, Sebastian says, "Generally, new ones are replacing a lot of our big, three-compression ferrous balers." Harris is also "still making a lot of shear sales, with most of our shear sales to the scrap industry, but some direct sales to mills as well," says Sebastian.

The majority of its recent sales are to existing customers, Sebastian says. "But keep in mind we’ve got a large equipment base and have equipment with most of the major processors," he adds.

What are these customers doing with their older processing equipment? "They’ll often ask us if we want to take it, but generally we refer them to people who specialize in the used equipment business," says Sebastian. "We may also use our Web site or other ways to assist our customers in helping to sell it."

In terms of where it physically ends up, "A lot of it moves south; a lot of it is going to Mexico and Brazil," notes Sebastian. Additionally, older units are sometimes kept as backup capacity if there is space at a scrap yard to host the footprint.

New scrap companies are also entering the picture, says Sebastian. "We’ve sold some equipment to fairly new and young processors. We sold one 1,100-ton shear to a new customer that even calls themselves a mom-and-pop operation," he notes.

With auto shredders being the largest investment, each time a new installation begins, competing recyclers in that region pay particular attention and try to determine whether an overcapacity situation is being triggered.

When asked whether there may be too many shredders in his home state of Iowa, scrap recycler Toby Shine jokes, "Anybody that owns a shredder other than me is one too many."

Humor is Shine’s ally in a state that, according to Recycling Today’s 2006 listing of America’s auto shredders, hosts the greatest number of shredders per capita.

Several states south in Texas, Jack Vexler of Monterey Iron & Metal, San Antonio, also considers overcapacity a possibility. "My part of the state is balanced. In the Rio Grande valley, there is not enough scrap for the shredders that are there or are being planned," he comments.

The past several years have been marked not only by new shredder locations, but also by larger shredders replacing older models. Scrap recyclers seem convinced that an investment in a shredder remains wise.

Shine’s firm, Shine Brothers Co., installed a shredder at its Spencer, Iowa, headquarters location in 2004. His company’s decision to install its 80/104 plant made by The Shredder Co., Canutillo, Texas, came just as the market was rebounding from a low. "Our timing was good; we were very lucky," says Shine. "We bought it when almost no one else was buying them. Now, we’re very happy with the purchase."

He continues, "Owning a shredder gave us the opportunity to handle scrap that in our case we just didn’t handle before. It has helped our nonferrous and our ferrous business. It really did exactly what we wanted it to do. In terms of return on investment (ROI), we’re exceptionally happy with when we did it as well."

Determining that sufficient ROI exists to add shredding capacity is a scenario that continues to be selected by recyclers across North America.

Skip Anthony, sales manager at shredder manufacturer American Pulverizer Co., St. Louis, has helped several smaller recycling companies enter the shredding sector of the business this decade.

"We developed a series of super heavy-duty 60-inch machines," Anthony told Recycling Today in 2007 regarding the company’s approach to the market. "We listened to the mid-sized scrap dealers express a need to shred and developed these machines to process from 2,500 to 6,000 tons per month of automobiles and scrap, just like the big boys."

The approach has been well received, as American Pulverizer has been as active as any company in taking part in the wave of new shredder installations this decade.

Vexler understands all the factors that are leading scrap recyclers to invest heavily during a booming market.

At the same time, he can’t help but recall the scrap market of nine or 10 years ago, when both prices and flow slowed dramatically, and steel mill and iron foundry bankruptcies were causing additional headaches for recyclers.

"It’s all fine if markets stay at this level," Vexler says of added processing capacity, "but if the flow stops by virtue of the fact that [prices] will someday be cut in half—which I think is very likely—some of those shredders are going to be sold very cheaply."

Sebastian remarks that any comparison to the late 1990s should include the note that the market’s three largest consolidators at that time all went through bankruptcy at roughly the same time, with one of them (the former Recycling Industries Inc.) being outright liquidated.

Vexler, however, recalls attending a sizable scrap equipment auction held in Louisiana in the late 1990s and cautions about learning from the past. "At that auction, a large, good-sized shredder sold for $75,000, and shears and balers were going for less than $100,000. We have to be careful not to forget history."

For now, Sebastian observes, "You do hear those comments that there are too many shredders out there and that they’re underutilized, but you don’t hear it from people who have shredders running eight hours per day."

With recyclers having gauged the hunger for scrap and the potential ROI, the thorough expansion and updating of the industry’s processing capacity shows few signs of slowing down.