Southeast Steel Primed for Growth

The steel recycling industry in the Southeast is in a strong growth mode, thanks in part to the overall strenght of the region's economy.

The ferrous scrap industry has been in overdrive over the past several quarters. Fueled by the expansion of both the U.S. and the world economies, demand for steel has swelled. Despite recent industry reports that various manufacturing indices — such as automobile production — are softening, steel manufacturing continues to show great promise. In response, demand for ferrous scrap has grown. This situation is echoed in the Southeast, although regional factors are pushing this area toward stronger levels.

A snapshot of the ferrous market in the Southeast reveals a small but growing segment of the steel industry. Multi-million dollar recycling projects dot the landscape, with Nucor’s planned steel minimill in South Carolina enhancing the steel leader’s presence in the Southeast. In Alabama, a joint venture between LTV Steel, British Steel and Sumitomo Steel, called Trico Steel, also will be located in Alabama, and is expected to have an annual capacity in excess of 2 million tons of flat-rolled steel. Additionally, British Steel recently announced it was relocating a direct reduced iron facility in Mobile, Ala., which will supply the new steel mill.

Another expansion being undertaken is the move by Tuscaloosa Steel to install steelmaking machinery, allowing the company to be less dependent on the volatile slab market, according to Mark Vincent, a spokesman for Tuscaloosa Steel. The $154 million project should be complete by next November, and will produce from 800,000 to 1 million tons of slab steel. British Steel is a 100 percent owner of Tuscaloosa Steel.

Aiding the market for ferrous scrap in the Southeast has been the continued growth of foundries in the Southeast. Several have recently announced expansion plans. Although foundries are much smaller ferrous scrap consumers than steel mills, the figure will continue to push the amount of ferrous scrap needed.

These expansions join a list of large steel mills in the region — including USX’s Fairfield, Ala., plant and Gulf States Steel, Tuscaloosa, Ala. — and reflect the continued development of the Southeastern steel industry.

AUTO FACTOR

Further evidence of the growth in the steel industry in the Southeast is the recent move by a number of automotive companies to site facilities in the region. Mercedes Benz and BMW both announced plans to locate automotive manufacturing operations in the Southeast, while Toyota, Saturn, and other large steel consumers have all built manufacturing facilities in the region.

In addition to generating significant amounts of ferrous scrap as a residual of their operations, these new facilities are attracting significant numbers of satellite facilities to supply their operations. This ripple effect will translate into continued improvement in the ferrous market in the Southeast.

Byron Kopman, president of Mindis Recycling, an industrial scrap ferrous and non-ferrous processor headquartered in Atlanta, sees these manufacturing plants as creating a positive effect through the region. "This industrial development is good," says Kopman. "As a result of this growth, other businesses that will support the plants will be located nearby."

Gerald Houck, a market specialist with the U.S. Bureau of Mines, notes that there hasn’t been a lot of activity in the Southeast until recently. But recent announcements about new manufacturing operations have been a cause of excitement in the region.

The Southeast is in the midst of a significant expansion phase, according to Kopman. In addition to many of the newer operations opening up, small foundries -- consumers of ferrous scrap metal -- are expanding. "Markets are tremendous, overall," Kopman says. He sees an increase in the manufacturing and infrastructure demands coming in the region.

The success the Southeast has had in bringing manufacturing into this area of the country can be attributed to a host of factors, including the lack of a dominant union philosophy in the area, the ability of states in the region to put together financial incentive packages to entice business, and an abundant workforce. Another factor is the growth of the region’s economy.

Bill Heenan, Steel Recycling Institute, agrees the steel industry in the Southeast is showing strong growth. He cites the fact that there is not as strict a union requirement in the Southeast, the ability of mills to be located on rivers improves transportation options and taxes and financial costs to steel companies are not as great in the South.

The recycling industry in general has attracted large end users of materials, both pre- and post-consumer, according to Martha McGinnis, president of Envirosouth, a market development company and non-profit recycler located in Montgomery, Ala.

In addition to new steel operations, McGinnis points out KW Plastics, the largest processor of HDPE plastics, is located in Troy, Ala.; Reynolds Aluminum has one of the largest aluminum can recycling facilities in the world located in Richmond, Va.; Wellman, the largest consumer of scrap plastics, has a large facility in South Carolina; Owens-Brockway, one of the largest handlers of glass bottles, has an operation in Atlanta; and International Paper and Boise Cascade both are completing projects in Alabama, which, when running at full capacity, will require more than 700 tons of office paper a day as a raw material.

WHY THE SOUTH?

There are a number of reasons frequently mentioned among industry observers for the recent improvement in market development in the Southeast. The most commonly mentioned is the right-to-work philosophy of the region. While the impact of a less unionized region is debatable, many feel this, along with the lucrative financial incentive packages many states are offering to manufacturers, is a key to the recent success the steel industry has enjoyed.

For the Trico Steel joint venture, a key reason the company decided to build in the Southeast was the market's possibilities, according to Mark Tomash, a spokesman for LTV Steel, one of the partners in the joint venture.

"Based on the market for steel, and the high level of imports, the Southeast is a good environment for siting the facility," he explains. But despite its Southern location, the facility may not conduct the lion’s share of its business there. Tomash points out the region has an abundance of ports to allow the mill to both pull raw material from a wide range and ship finished product to locations throughout the world.

Ports that play a key role in the Southeast include the Ports of New Orleans, Savannah, Ga., and Charleston, S.C. In addition to access to overseas routes through these ports, the inland waterways system is plentiful in many parts of the Southeast. Several large ferrous scrap consuming mills, including Nucor’s Hickman, Ark., minimill, ship a significant amount of their ferrous scrap by barge from Midwest locations.

While the labor issue is important, one of the biggest hurdles for heavy industry is the ability of the state government to put together an effective economic development policy. "It seems that states in the Southeast are more conducive to economic growth," says a spokesman for Tuscaloosa Steel. There also is enthusiasm over the potential workforce in the Southeast new manufacturing operations can tap into.

Along with competitive financing packages, some recyclers note a more relaxed regulatory environment in most of the Southeast. Despite this, some quirks are surfacing that are a cause of concern. Parts of Florida complicate industry operation with patchwork quilt of regulations. In a recycling conference presentation late last year, Steve Levetan, president of Resource Services, Atlanta, noted flow control legislation makes it difficult to run a recycling operation in Florida.

OLYMPIC BOOST

Despite some legislative difficulties, the Southeast continues to grow as an integral part of the steel industry. Reflecting this growth has been the build up of many areas, especially Atlanta. This city is gearing up for the 1996 Summer Olympics. The construction of buildings and infrastructure has grown, creating greater metal demand.

While Atlanta has been the center of this boom, Kopman notes there is significant economic activity in Birmingham, Ala., South Carolina, and other parts of the Southeast.

Scrap processors have enjoyed strong markets for many years in the region. Part of the reason has been the number of steel mills located in that part of the country. In Birmingham there are a number of steel mills. Birmingham may be a hotbed of steel activity in the South, but is a much smaller player than the East and Midwest. Even with the growth in new capacity, along with the stable of mills and foundries located in the Southeast, there is a glut of scrap in the region, indicating the potential to add capacity in the area without running out, according to Joel Denbo, with Denbo Iron & Metal, Decatur, Ala.

Denbo argues that some of the new operations in the Southeast haven’t significantly benefited the region. The Saturn complex, Denbo says, "is built from soup to nuts," reducing external demands for steel and other material to feed the plant. Denbo points out that the amount of scrap generated at the mill is far less than that of older facilities.

For years, Birmingham has been lost in the shadow of many of the older steel plants located in the Northeast and Midwest. While steel production in Pittsburgh has fallen off since the boom years of more than two decades ago, Birmingham has not been able to capitalize on this. For one, only recently have many of the steel operations in the area started to show signs of rebounding from the difficult period of the past several years. Until recently, the result has been an over-supply of scrap collected in the area.

INTERNATIONAL SCOPE

Expansions and new development may be growing in the Southeast, but that doesn’t necessarily mean steel mills are limiting themselves to dealing in the South. Denbo points out that while Nucor has a minimill in Arkansas, the mill is located on the Mississippi River, allowing the mill to take in ferrous scrap from localities throughout the eastern United States.

Due to the network of rail, barge, and — to a lesser degree — truck, even mills in the deep South can purchase scrap from throughout the eastern United States. Although Southern mills are able to move finished products throughout the U.S. and world with an efficient transportation system of barge, rail and over-the-road traffic, a strong network of steel suppliers in the general vicinity is an added advantage as the high costs of transportation and the emphasis on just-in-time inventory have assumed a growing role.

While the Southeast will undoubtedly follow the overall steel cycle, the combination of new capacity and other factors should keep the Southeast on the upswing.