Slow global economy affects local scrap yards

Thus far, 2010 has been a decent year for scrap metal, with prices peaking near $300 per ton of steel....

By Isaac Bonnell

Forget about housing starts and foreclosure rates, Ted Thompson of Z Recyclers has his own economic indicator: He watches the size of the company’s scrap metal pile.

“My dad has always called our scrap pile our bank account,” Thompson said, looking out over a pile of mixed and mangled metal parts about 50 feet high and covering nearly two acres. “We can judge the market just by looking at it. That back corner over there hasn’t been touched for five to six years.”

When the market for scrap metal is good, prices go up and the pile goes down. When the market is bad, the pile slowly grows as the company waits to get a better price.

Thus far, 2010 has been a decent year for scrap metal, with prices peaking near $300 per ton of steel. Since May, though, prices have been slowly dropping and many in the industry are hoping it doesn’t stay that way.

When the housing market collapsed in 2008 and construction and manufacturing activity slowed, the market for scrap metal also dropped significantly. For scrap yards like Z Recyclers, that meant the companies that shred the metal for reuse were paying much less for the raw material sold to them.

“The end of 2008 was when it absolutely tanked,” Thompson said. “We couldn’t get rid of material. We went from 19 employees down to nine. That is stuck in the back of my head  — I really hope that doesn’t happen again.”

Z Recyclers has since been able to hire back four of its former employees, but the market is nowhere near where it was before the recession.

Global demand

Since much of the shredded scrap metal produced here is sent overseas, the global economy has a big impact on the price of scrap metal. And for the past two years, the global economy did not need a whole lot of scrap metal.

Construction is a major supplier and consumer of scrap metal. Many industry analysts point to a recent uptick in construction in China as one of the reasons for higher demand this year. But here in Washington, construction is still slow, meaning there is less metal being scrapped.

“The flow of the market depends a lot on construction,” said Marty Kuljis, manager at Northwest Recycling. “A great deal of scrap metal comes from that sector and that’s fallen off considerably.”

Globally, construction has once again slowed, causing the price of scrap metal to drop to around $180 per ton, Kuljis said.

Steel shipping containers are also a large supplier of scrap metal. But low scrap metal prices are keeping many shipping containers from being scrapped because of a growing market for used containers, said Dave Black, who owns Big Steel Box in Lynden with his wife Debbie.

Big Steel Box rents and sells new and used shipping containers, which are generally used as backyard storage. Black buys many of his used containers from shipping companies in Seattle and he said he is seeing a lot of poor quality containers that would normally be scrapped.

But scrap metal prices are so low that many companies are holding on to their aging containers hoping for better scrap prices to come. With global shipping also down, the number of unused shipping containers is starting to pile up.

“When the scrap market was high, they were taking a lot of the worst-case shipping containers and scrapping them,” Black said. “Now there is a ton of really nasty containers in Seattle.”

Staying on top of the pile

The trick to staying ahead in the scrap metal business is just like any other — never pay more for something than what you can sell it for. The only problem is that scrap metal prices fluctuate daily.

“If you buy too much at too high a price, you have to watch the market to make sure it doesn’t drop too quickly,” Thompson said.

Scrap yards like Z Recyclers are almost always looking for more scrap metal, which makes the business quite competitive. Most yards will have agreements with local manufacturing companies to take all their scrap metal, but the average person coming in to sell scrap metal is looking for the best price and will call around or wait to give it up.

“It can be very cut throat at times,” Thompson said. “It’s more aggressive when it comes to getting the scrap. And when the market is down, you almost start to see it pile up around the county.”

To insulate itself from the daily fluctuations of scrap metal prices, Z Recyclers picks through the scrap metal it receives and pulls out items like antique tractor parts or artsy pieces of copper that might be of interest to someone. This draws a regular crowd of metal artists and repairmen, who sort through boxes of copper pipe, aluminum scraps and structural steel.

“It is one of the neat things about working here; you get to see a lot of different people from all over the county,” Thompson said.

All the while, the company ships out about five truckloads of scrap metal each week, slowly working toward that back corner of the pile that hasn’t been touched for five years — and may not be touched for a few more.

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