Who’s afraid of the big, bad wolf?

Addressing a panel of scrap industry heavyweights at the Recycling Today Media Group’s Scrap Expo in Louisville, Kentucky, in September, Sierra International Machinery President John Sacco asked how companies large and small can compete against the arriving “big, bad wolf”—steel mills that own and operate metal recycling facilities.

Vertical integration has been steadily gaining momentum among steel companies. A list of the 20 largest North American ferrous scrap processors and shippers published by Recycling Today in March 2022 shows six of the top 12 spots are held by steel producers with the ability to keep tons in their own networks.

Examples of consolidation abound. In March, Texas-based Commercial Metals Co., now going by CMC, acquired two scrap facilities in Tennessee from Roane Metals Group. In other notable moves within the last two decades, OmniSource became part of Fort Wayne, Indiana-based Steel Dynamics Inc.; Cincinnati-based David J. Joseph and Missouri-based Galamba Group were acquired by Charlotte, North Carolina-based Nucor; Ohio-based steelmaker and mining firm Cleveland-Cliffs Inc. acquired Ferrous Processing & Trading, headquartered in Detroit; and Australia-based steelmaker BlueScope purchased Waterloo, Indiana-based MetalX’s ferrous business as well as Milliron Recycling of Mansfield, Ohio.

When it comes to competing against vertically integrated steel mills for scrap, Jay Robinovitz, president and CEO of St. Louis-based Alter Trading, which operates a network of more than 65 scrap yards, said, “Bring it on.”

What, me worry?

Robinovitz reiterated that the ability for independent scrap yards to compete with those owned by steel mills comes down to having solid relationships with the mills.

“I guess when I think about this topic, everybody’s worried; everybody’s talking about these steel mills that are buying up scrap companies,” he said. “You know, I don’t care. We’re here to compete, and I don’t care if you’re a steel mill or a scrap yard. I think there are scrap companies in every town, every city, every state you go into. You can’t buy them all up, you can’t put them all together. There’s always going to be a competitor.

“[Ferrous scrap is] a commodity. There’s a price it can be traded at, and a price that makes sense that you can buy it off the street anywhere. … I’m not really afraid. … I welcome competition because it’s just part of the world we’re in.”

George Adams, CEO of SA Recycling in Orange, California, which operates 130 scrap yards, agreed there always will be competition for scrap.

“If there was only one steel mill out there, then maybe it makes a difference,” he said. “But there’s a lot of steel mills, and a lot more steel mills being built. I feel that steel mills have been owning scrap yards for a long time. I think they’re going to continue to do that, and I think they’re going to continue to buy more. It’s a fact.”

Adams noted as more steel mills are built, around 12 million tons of new capacity are expected to come online in the short term, with more coming afterward.

“I think there’s plenty of room to do business, and I don’t care who you are,” he said. “I don’t care if you have 100-plus yards like I do, you can never beat a determined entrepreneur. A small, owner-operator entrepreneur will kick your butt every single time. It’s just a fact. They’re focused, they’re there every day, they’re living it. I think there’s always a place for all those guys.

“As long as there’s enough steel mills to compete so that even if one steel mill wants to overpay for its shred, there’s still another steel mill that is losing that material and wants it from you. As long as we have a lot of steel mills, we’re good to go.”

Danny Rifkin, president and CEO of Fort Wayne-based MetalX LLC, witnessed steel industry vertical integration firsthand. The Rifkin family founded Fort Wayne-based OmniSource, which Steel Dynamics Inc. acquired in 2007. Along with his father and brothers, Rifkin grew OmniSource to an organization with 4,000 people handling 6 million tons of ferrous scrap annually until his departure in 2008. Under his leadership, the company completed 25 scrap acquisitions.

He said independent scrap businesses can compete with steelmakers operating scrap divisions.

“No one can best a sharp entrepreneur,” Rifkin said. “I think the industry is stratifying, and, as we saw with what happened in the Midwest in that last wave of consolidation, the mill mentality, or the focus of what the mills are trying to accomplish, is very different than what drives an entrepreneurial scrap company. There’s a place for that, and I think the future bodes well for the small to medium players who will have that opportunity. There will be a scrap business and there will be consumption.”

Customer care

The panel of Robinovitz, Adams, Rifkin and Kevin Gershowitz, vice president of Gershow Recycling in Long Island, New York, agreed that successfully competing in the changing ferrous scrap landscape comes down to strong customer service and relationships with buyers, regardless of a scrap yard’s size.

“I’m a kid from a small scrap yard in Massachusetts, and every little yard matters,” Robinovitz said. “You can compete, and there is a role and a position for every single recycler in this country. I’m telling you, no matter who you are, if you take care of your customers, whether they’re coming into that yard or you’re picking it up and servicing somebody, you can sell [scrap] and you can make a profit. I think that’s part of the inherent nature [of the industry]. … There are so many different ways [to make a difference]. You don’t have to have a shear. You don’t have to have a shredder. The most important guy in my life was always that peddler that came in every day, rain, cold, snow, shine, and he’s trying to feed his family, and I think that is why that’s always going to be a part of our industry. I don’t think they’ll have to worry.”

Gershowitz said if a scrap yard is shut out from a mill, it’s likely related to the lack of a sound relationship, a material quality issue or a high asking price rather than vertical integration’s effects.

To Gershowitz’s point, Adams said, “If you do something wrong at a local steel mill, not having that relationship, they’re going to cut you off. But there’s always another steel mill facility that’s farther away. Or you modify your business where you’re doing more nonferrous instead of ferrous. We’re really talking about steel mills right now, but there’s more to our business than steel. … So, maybe you’re not handling as much steel and you’re handling more nonferrous … or you’re selling new steel. I just feel like there’s a million ways to modify. I think you can always compete.”

Setting the price

In Sacco’s estimation, steel mills with scrap operations keep their scrap pricing down because they want their mill sector to show profitability versus their yards. He asked the panel if they believed that to be true or if the market truly was free.

Gershowitz said he does not believe vertically integrated steelmakers are trying to lower their scrap buying prices to affect their mills’ margins because the chief goal of scrap processors and consumers is “to buy scrap cheap.”

“To some degree, we can’t really dictate the price we sell it for,” he said. “From my perspective, it’s a lot easier to dictate your buy price than it is to dictate your sell price. … Our goal is to win the scrap.”

Adams added that the market sets the price of scrap and will continue to do so.

To Rifkin, the issue is less the market and more the transfer prices between the mills and their captive scrap companies. “That’s where you see all kinds of disruption and all kinds of chaos,” he continued, “because it’s fine for a consolidated company that’s a steel company with a scrap arm to report earnings or profits however they want. But, if you want to address the underlying issues internally, you can find that the scrap operations become demotivated or disincentivized and have trouble competing. That’s the flip side.”

“You see some people trucking scrap farther than you could ever imagine,” Robinovitz added. “Well, you can say, ‘It doesn’t matter how expensive it is, it’s our shredder.’ It matters what the commodity is valued at when it hits the ground. If you want to be competitive in the steel business, I think you have to be competitive in how you produce it,” he continued. “You should be matching our markets, what we’re living with, because that’s the true nature of a competitive mill.”

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