Scrap Metal Market Strong & Steady

The metals scrap market has shown steady recovery from the pandemic as manufacturing in North America has experienced a steady Purchasing Managers Index (PMI) according to the Institute for Supply Management (ISM).

"For the past 16 months, the PMI has been over 60 percent, which indicates an expansion in manufacturing," said Michael Petruski, managing director - metals & mining with B. Riley Advisory Services. "Currently, there are a number of issues affecting the metals scrap market including the reduction in automobile manufacturing (due to semiconductor chip shortage), which has reduced the amount of #1 busheling scrap. The historically high market price of hot-rolled steel and the raw steel production exceeding 85 percent have supported ferrous scrap market prices."

Rick Perez, founder & chief executive officer of Avangard Innovative, a waste and recycling optimization company based in Houston, Texas, said the shortage of scrap and demand for consumer and construction goods increased demand for ferrous and nonferrous metals domestically and internationally on a large scale.

"In a global view, there were countries that banned the export of scrap mainly from realizing the value of their own scrap and how it could be utilized in finished goods within their countries," Perez said. Some countries that had strict import recycling regulations even changed their import laws to be able to accept recycled metals.
Perez said the biggest issues impacting the scrap metal markets lately is the flow of scrap from manufacturing plants being shuttered, transportation and supply chain disruptions to handle the scrap, and labor shortages.

"With various countries placing restrictions on import scrap, there is now a strong demand for scrap in domestic and export sectors along with healthy ferrous and nonferrous markets," Perez said. "The metal markets are trending toward more demand than supply and will for some time to come, as global markets recover and build out infrastructure plans."

Perez said electric arc furnace (EAF) mills are being discussed and being built throughout all regions in the U.S. This is driving the demand for scrap yard acquisitions and consumers, both domestic and international.

"Many of these projects are being built while adjusting to climate policies and regulations to manufacture goods and to further adjust green initiatives," Perez said. "The U.S. market continues to rapidly advance and lead the way in metal recycling."

ISRI chief economist and director of commodities Joe Pickard said that as with other sectors of the manufacturing supply chain, metal recyclers are enjoying significantly improved market conditions this year amid rising volumes and prices.

"Investments in recycling technology and gains in operational efficiency have also been conducive to improved profitability," Pickard said. "At the same time, supply chain bottlenecks, difficulty hiring and retaining new employees, and extremely challenging transportation conditions across the truck, rail, barge and container markets continue to pose significant challenges."

For U.S. metal recyclers, domestic consumers continue to be their largest customers, with around 70 percent of all recycled metals processed in the U.S. sold to domestic consumers. However, as Pickard explained, export markets remain an important outlet for U.S. recyclers and for most recycled commodities, the U.S. is the largest single exporter in the world.

"Overseas demand has improved this year for both ferrous and nonferrous metals," Pickard said. "Key growth markets this year include our North American trading partners in Canada and Mexico, in Southeast Asia (including Malaysia and Vietnam) and South Asia (India, Pakistan, and Bangladesh). As we've seen in recent years, potential trade restrictions on recycled commodity imports and exports continue to be a source of concern."

Industry Merger & Acquisitions Activity

Within the last year, there have been many M&A deals across the U.S. where consumers are looking to control and secure more scrap for their outputs and production control costs.

According to Pickard, the recycling industry continues to see significant M&A activity in terms of both vertical integration, with large steel mills and other producers acquiring scrap operations, and horizontal integration where larger scrap companies are acquiring other companies and facilities.

"The M&A activity continues to contribute to the heightened competition for material that has been a key feature of metal markets in recent years," Pickard said.
As Perez explained, mergers and acquisitions across the U.S. are starting to change the dynamics in the scrap business in many ways for consumers and mills to control more scrap within their networks.

"This provides stronger leverage and more influence on the domestic markets and overall performances of their companies," Perez said. "With many investments and the growth outlook for producers of metals, one of the biggest driving forces is the ability to access scrap and control costs for their products. As the U.S. continues to recover from the pandemic, with plans for countrywide infrastructure growth, we are seeing demand increase for products that are heavily reliant on consumer and construction goods, which is resulting in an uptick for scrap metal volumes."

Pickard added that there are a number of market conditions that are incentivizing M&A activity and can favor larger companies, including the need to ensure steady material flows; the need to invest in technology to produce higher quality grades; investing in transportation equipment including trucks, railcars, and containers; advantages related to managing cash flow; higher regulatory burdens that can pose significant barriers to entry for new market entrants; and a favorable interest rate environment that reduces the cost of financing acquisitions.

Jeff Saal, vice president of sales, haz division at Clean Earth, said the acquisition of the Environmental Solutions business (ESOL) from Stericycle in 2020 grew Clean Earth's footprint nationally, further propelling the company into a global platform for waste management, including aerosol can recycling.

Clean Earth has the largest specialty waste network with 92 locations including 24 transfer, storage and disposal facilities (TSDFs) and technology that allows for efficient recycling of aerosol can components such as metal.

"Clean Earth's key to successful aerosol recycling is its hazardous waste facility in Morgantown, West Virginia, that processes nearly one million aerosol cans each month, received from coast to coast," Saal said. "From our perspective, we've increased our footprint within the scrap metal recycling market by expanding our own network focused on recycling and then sending material such as metals out for the final recycling process."

Saal said the biggest driving force in regard to mergers and acquisitions is acquiring companies that have the capability of recycling materials that Clean Earth does not presently process.

"We have such a large collection of facilities that collect various types of waste. Finding avenues to recycle is always going to be a key priority for our company," Saal said. "The goal of the scrap metal industry is to melt steel to make metal products, which is more cost effective than raw material and provides a sustainable alternative to raw material. From a recycling standpoint, the number one market is steel making."

Clean Earth also has a sister division known as Harsco Environmental. It is a similar business in the sense that it recycles, reduces, reuses and processes byproducts, but unlike Clean Earth, which processes hundreds of types of waste, Harsco Environmental is focused on the scrap and byproducts from the steel and aluminum industries only.

"Our company, and that division specifically, is committed to leading our industry into a more sustainable future. Harsco Environmental has developed innovative metal recovery processes for carbon and stainless-steel slags and aluminum dross, helping customers capture valuable iron, nickel and aluminum that can be recycled directly into the metal production process," Saal said. "We are leveraging our most recent acquisition to further their commitment to recycling nearly all components of an aerosol can, further benefiting the scrap metal recycling market."

Steelmakers also are actively looking to vertically integrate through the acquisition of metals recyclers. As Petruski explained, integrated steelmakers and mini-mill steelmakers recognize the need to secure sources of prime ferrous scrap from industrial manufacturing.

"Recent announcements by Schnitzer Steel to acquire Columbus Recycling and Cleveland-Cliffs Inc. to acquire Ferrous Processing & Trading are major market movers," Petruski said. "Cliffs is only the most recent major mill to acquire a scrap processor for vertical integration with Steel Dynamics and Nucor before them. We wouldn't be surprised to see additional consolidation in the industry including major producers continuing to look for opportunities to vertically integrate outside of these three."

2022 and Beyond

The forecast for both ferrous and nonferrous markets tends to be positive with strong demand in the markets as the global environment recovers from the pandemic. "We watched copper hit all-time highs this year due to mainly export demand and steel grades peaking with several large mills being built throughout the U.S. and current mill demand forecast," Perez said. "We see the markets staying healthy for the producer and consumer of scrap metal as the country continues to recover."

Some of the biggest challenges faced by the industry involve the global supply chain interferences and domestic trucking issues with driver availability and lane rates. Perez said that other issues such as the workforce shortage and the ability to produce scrap and automobile manufacturers scaling back on production outputs, and chip shortages for many consumer goods, are also several areas where the industry must focus.

"While the challenges associated with labor and transportation markets are likely to remain with us for the foreseeable future," Pickard said, "the outlook for recycled metal markets in 2022 is extremely positive, given domestic manufacturing capacity expansion plans that will rely on scrap as their main raw material input; rising global demand, given scrap's favorable carbon footprint as compared to primary production; the increased focus on sustainable development, and the ongoing recovery of the global economy from the COVID pandemic."

According to Petruski, industry analysts anticipate that North American consumption of steel has leveled out and ferrous scrap generated from manufacturing will remain at or decline due to lighter weight steels, in-roads by aluminum and improved manufacturing efficiencies.

"Add to that a greener movement to decarbonize the steel industry leading to more EAF production and the consumption of more scrap," Petruski said. "More scrap demand with the same scrap supply should see elevated pricing and opportunities in the future. As we move forward to 2022, we anticipate hot-rolled steel prices will soften and ferrous scrap prices will soften as well. The proposed infrastructure bill could keep raw steel-making above 80 percent capability and demand for ferrous scrap strong."


Published in the December 2021 Edition