A longer perspective amid short-term confusion

As the COVID-19 pandemic has caused global steel and ferrous scrap supply and demand shocks in 2020, the word “unprecedented” began to emerge in media coverage. Even veteran ferrous scrap trader and consultant Nathan Fruchter admits few, if any, points in history can make for a clear comparison with the first half of 2020.

Fruchter, however, does own a lengthy perspective based on his several decades in the industry. As he surveyed the ongoing economic turmoil, Fruchter offered Recycling Today some thoughts on what the scrap industry is going through, with an eye on aspects of scrap recycling that make it unique.

The following conversation with Fruchter, who heads New York-based Idoru Trading, took place in late April 2020, as the ferrous scrap market was in the midst of exhibiting some of its unique characteristics.

Recycling Today (RT):Why have ferrous scrap prices moved up, whereas most other commodity prices, including steel, have moved in the other direction?

Nathan Fruchter (NF): Many people who are not directly immersed in the physical scrap trade, such as scrap recyclers, collectors and peddlers, fail to recognize that ferrous scrap is a very different commodity than most others, and therefore it does not react the same way as most others do. They apply the same logical market assumptions and speculation that go into most other commodities with scrap, and therefore logically assume that scrap will react the same way. I am sorry to say it does not always do so.

RT: And why is that?

NF: Scrap is sourced very differently from most other commodities, such as those mined out of the ground or a mountain, produced in a plant or smelter. Scrap is nothing like them. It is plainly and simply collected by peddlers, demolition crews and handlers of dismantled ships, to name a few. These obsolete appliances, cars or building materials are then brought to a recycling facility, where they get sorted and cut to international specifications.

When you have a mine, a mountain or a petroleum field, you can choose to produce as much as you want to produce. You will obviously make that decision based on what the market requires or can handle. Just look at OPEC and how often they move their production rates up and down to adjust to world market conditions or play their usual political games.

It is nothing like that in the scrap industry. A scrap recycling facility is only able to sell and ship out as much processed scrap as it can get un-processed scrap into the yard. If people aren’t throwing out household goods, or getting rid of their old cars and buying new ones, or if old structures are not demolished and being replaced with new ones, then the flow of scrap slows down and creates a shortage.

It’s a very physical commodity. One that depends on human behavior and consumption, and not on the owners of a mine or a mountain deciding how much to mine and produce.

RT: Why has the flow of scrap slowed to a trickle during the COVID-19 epidemic?

NF: Several factors come into play here. Scrap is a product of affluence. When the economy does well, we spend more, therefore we consume more, and we produce more scrap. But the economy has not been doing well since early March. As the coronavirus spread to the United States, people started to get nervous. We knew many jobs would be lost and everything would shut down. It creates a lot of uncertainty, and we therefore immediately cut back on our spending. The longer the crisis lasts, the more we cut back our spending. As a result of cutting back our spending, we generate less scrap.

Now, add to this a heavy dose of social distancing, and the peddlers can’t go out to collect their usual tonnage, and people are disposing of less, so there is less for them to collect. Many scrap recycling facilities were also forced to shut their doors to peddlers, and in some cases even to outside demolition companies (who, by the way, also demolish less as their staff is hunkered down at home). So now the feed levels of scrap start slowing down every week. At first, the flow into the yards was down by 20 percent; a week later by 30 to 40 percent, and a week later it was down by 50 to 60 percent. Every scrap recycler I have spoken within the U.S. and Europe has had the same lines: “My collections are down,” “Nothing comes in” and “It’s trickling in.”

RT: On the sell side, we are seeing bulk shipments of scrap sailing from U.S. loading ports as usual. How does that happen, considering social distancing restrictions?

NF: Loading a bulk ship with 30,000 tons of ferrous scrap happens outdoors with minimal staff required, and staff are located very far apart from each other. A loading dock can easily be 300 feet long and 100 to 300 feet or more wide. To keep things in perspective, a typical football field is about 360 feet by 160 feet, so you have a very large working area. The crane operator sits high above at the top of the crane and moves the scrap with the grab or loading bucket from the stockpile into the hold of the ship. There is a foreman present on the dock, but he’s solo. The trucker who brings more material to the dock is inside his truck and has no need to come out in normal times, let alone in these times. The inspector runs around on the dock testing and inspecting the materials, but he has no need for any interaction with anyone. If there is a need for these people to communicate, then there are walkie-talkies or cellphones. Hence, this part of the industry is, thankfully, not really affected by social distancing. Plus, they are able to consider themselves essential businesses.

RT: To what extent can the container export sector emulate the bulk sector?

NF: It’s a very different scenario loading containers. First of all, a container is 20 or 40 feet long and about 7 to 8 feet wide, so your working space is much smaller. Staff need to be much closer to each other while stuffing the container. If you load it the old-fashioned way, then your mobile crane operator, who moves the material close to the container doors, is nearby the guy who drives the front-end loader pushing the scrap into the container. Often, there is a third person directing or helping to guide and stow the material once its inside the box, all while another person needs to take the usual loading pictures. Improvement comes with modern container loading systems, which require less close interaction between the staff.

Nathan Fruchter’s Idoru Trading provides trading and consulting services to ferrous scrap buyers and sellers.

However, because of COVID-19, the transportation industry is almost at a standstill in some parts of the world, so you cannot get enough containers to load your scrap. If you have containers, you may not be able to get a booking fast enough. Now, add a dose of social distancing to all this and you cannot get enough truck drivers or staff to read the scales, do the paperwork, and so on. That’s why bulk was able to ship out comfortably and containers had issues.

RT: As the U.S. economy reopens, how do you see recyclers, including bulk and container sellers, getting back to their day-to-day trade while respecting any new social distancing guidelines?

NF: I think that script is still being written by the powers that be. While we all have a vague idea of some changes that are required in order to maintain that social distancing mode we are in now, I can see this last for quite some time. As a result, recycling firms will need to make some changes. These will probably be dictated by local or state authorities, and every facility will need to implement them as best they can.

Besides the usual measures like temperature taking, wearing masks, gloves, keeping the safe recommended distance of 6 to 10 feet, washing hands and sanitizing, we could see the following:

1. Plant managers, shift managers or people with authority who have a team of people working under them or who they supervise, may need to submit a signed declaration to management that they will follow all the guidelines imposed.
2. The employer may have to group together separate shifts with the same employees together at each shift. So, staff from one group should not work and mix in another group.
3. In a scrap-receiving yard, a separation may have to be placed between the employee and vendor. For example, if a scrap peddler comes in to drop off scrap, the person behind the scale needs to have a separation between them. Most yards already have this, but many don’t. If the peddler gets paid for the scrap, then a separation is needed. For example, at my local post office, they placed thick, soft see-through plastic from the ceiling down and cut out windows in the plastic that could be covered from the inside, leaving a way to communicate.
4. Where feasible, spaces could be marked 6 to 10 feet apart.
5. Signs can be placed to remind people of keeping proper distances throughout the plants.
6. For inspecting scrap, if more than one independent inspector is present, both may have to follow the same guidelines
7. For loading and discharging cargo that requires more than one person inside the hold to help stow, load or discharge the cargo correctly, proper gear may have to be worn, even going as far as suggesting a hazmat suit for people inside the holds.
8. Ship’s crews may not be allowed to disembark while in port, even if they have the proper visas allowing them normal entry into the U.S.

I am certain there will be others. These are just the ones I was able to come up with when I was asked to contribute my thoughts to a client’s safety panel.

RT: How do you expect steel producers to restart their melting programs and sales of finished steel products?

NF: Firing up a steel mill after a few weeks’ closure is not as simple as firing up your barbeque. It takes a few days to get it all up and running. I have to imagine each steel producer’s HR department will, unfortunately, have their hands full with all kind of issues. It’s going to be tough. Then the question is, does the mill have open orders so it can start producing and ship out, or does it need to start making sales? I hope and pray they all come out of this as unscathed as possible.  

RT: How have the steel and scrap industries fared with management and staff working from home?

NF: I have been blessed to work with some great legacy steel mills and recyclers. I have to say that they all manage to do their day-to-day jobs as professionally as if they were working from the office. Knowing many of the staff personally, many times folks have to manage a business call while keeping an eye out on their young children who were playing or following a Zoom class. Everyone I know pulls their weight even under difficult circumstances, and it has made working with these professionals even more rewarding. You develop a new sense of professional respect for them. Kudos to all.

RT: What lessons have scrap recyclers, steel mills and traders learned from this experience?

NF: I think everyone has his own feelings on this subject, and somehow deals with this crisis in his or her own way. It made me appreciate more of what I have and learn to do with less. There is also a silver lining here, as some of us get to spend a lot of quality family time, which changes the family dynamics (hopefully for the better). I think the same scenario takes place in business toward our colleagues, suppliers and clients, even while we are separated from one another. You somehow grow closer during a crisis and learn to appreciate and value each other more. That has been my experience.

Nathan Fruchter is the principal of New York-based Idoru Trading. He can be contacted at nfruchter@me.com.