Continuity & Change

November/December 2018

By Katie Pyzyk

Some aspects of the scrap industry have hardly changed in a century. The fundamentals of supply and demand continue to largely drive the markets for scrap commodities. Prices still rise, fall, and rise again. Scrap sellers need to find buyers; scrap buyers need to find sellers; and scrap brokers and traders still play an essential role bringing the two together. As the intermediaries between buyers and sellers, these professionals must understand not just the materials they handle and the trends in prices, but also each customer’s needs and preferences. Traditionally, that understanding developed over time through relationships between individuals and companies. That’s still largely the case. “This is very much a personality, relationship, and comfort level-driven business,” says Andy McKee, president of materials trading for Schupan & Sons (Kalamazoo, Mich.), who has been a scrap trader for about 12 years.

But if you took a scrap trader from 50 years ago and put him on a trading desk today, other aspects of the business would look very, very different. The global nature of the market for U.S. scrap and technological advances that ease communication and other aspects of scrap transactions are two of the biggest revolutions in the process of buying and selling scrap, today’s traders say.

Changing communication modes

Technology—especially communications technology—has revolutionized the work of buying and selling scrap. “Originally, all trading was done over the telephone, then fax machines came along. … Now it’s all pretty much by Internet,” says Howard Glick, CEO of Tri-State Iron & Metal Co. (Texarkana, Ark.), who has been in the business for 42 years. “E-mail has definitely changed the way scrap is traded.” It provides quick communication, the benefit of not playing phone tag, and ease of transactions with people in different time zones or speaking different languages, traders say, making it their preferred communications tool.

Opinions on text messaging are more mixed. “I like texting, but to confirm something I have to have it in front of me—it has to be e-mail,” says Nini Krever, export sales manager at Wilmington Paper Corp. (Pine Brook, N.J.), who has brokered scrap paper for 40 years. Sammy Holaschutz, who has been a nonferrous trader with W Silver Recycling (El Paso, Texas) for five years, agrees. “I personally try to stay away from negotiation via text,” he says, “because having a negotiation paper trail is better.” E-mail also is easier to search to track down deal details.

Popular mobile-device communication apps such as WhatsApp, which function much like texting, have the same shortcomings, but they’re popular in some areas. “The international market is in love with WhatsApp,” Holaschutz says. Indeed, “my customers in India only use WhatsApp,” Krever says, but “there’s no good search function. Or if there is, I don’t know how to use it. … But with e-mail, I can search.”

Is this a generational change—from phone to e-mail to text? Perhaps in part. “I see my generation doing more purchases and sales via e-mail … whereas when I do business with older generations, they use the phone more,” says Holaschutz, chair of ISRI’s Young Executives Council. “I think both are very important from a standpoint of building relationships with your consumers or suppliers and understanding their needs.” Zach Mallin, vice president of Mallin Cos. (Kansas City, Mo.) and also a young executive, says that “some of the younger people rely a little too much on … e-mailing and texting, and [they] lack the more personal connection.”

The best strategy, these traders say, is to remain flexible and communicate according to individual customers’ preferences. “I can get business done either way,” through technological or personal means, “and I tend to levitate to whatever [form] my dance partner likes,” says McKee, who says he’s right on the border, generationally, between Generation X and millennials. “But I’m amazed at the amount of business that gets done via text message,” he says. “It makes me chuckle. Contracts literally worth millions of dollars are being done over text. It’s not my preferred way to get deals done, but I’ve definitely done it!”

Technology has changed scrap trading in other ways as well. “Everyone now has access to the same information online,” rather than mills, shredders, and scrap suppliers not having knowledge of each other’s products and pricing, says Sean Daoud, treasurer of PNW Metal Recycling (Longview, Wash.). That wider access to information has created more transparency, he says, which “has changed the dynamic in [this] competitive field.” It also may have eased entry into the business. “It appears that there are more traders and brokers now … than there were 10 years ago. It’s a growing sector in our industry,” Mallin says.

The ubiquity of smartphone cameras—and the ease by which digital photos and videos can be sent electronically—make it easier to inspect material anywhere around the world, notes Bernie Lee, ISRI’s commodities research analyst. Online financing and payment mechanisms also facilitate scrap trading, and the greater electronic recordkeeping and computing power available to most companies allow them to apply analytical tools to their business transactions to better forecast or model their activity, he says. Traders anticipate a steady progression toward the use of more technology to facilitate their work. “If you can save time and money that way, why wouldn’t you?” Daoud asks.    

A Whole World of Scrap

The globalization of the scrap industry is the other trend traders identify as the biggest change from a generation ago, “maybe even more than IT,” Krever says. “I can’t even begin to explain how it has affected the scrap industry. To give one word to it, it’s China.”

From 1991 to 2002, China’s imports of U.S. scrap grew a whopping 1,500 percent, from 396,000 mt to 6.6 million mt. Those imports continued to grow rapidly through the first decade of the 21st century, with China purchasing 64 million mt of U.S. scrap exports in the 2003–2007 period and 102 million mt in the 2008–2012 period. China’s scrap purchases started to decline in 2012, however, and in the most recent five-year period, 2013–2017, it purchased only 85 million mt of U.S. scrap exports. The declines primarily are due to regulatory measures China has instituted since 2013, first to more closely scrutinize contamination in scrap imports, then to crack down on improper import licenses and smuggling. In 2017, the country banned imports of some scrap materials, dramatically raised the contamination thresholds for all others, and declared its intention to stop importing scrap by 2020.

China’s massive demand for recovered materials largely shaped today’s residential recycling collection landscape, says Linda Leone, vice president of fiber supply development at WestRock (Norcross, Ga.). “Single stream [collection] was never designed to supply domestic mills,” she says. Rather, the concept was implemented to “feed the world’s biggest consumer, China.” Ironically, the levels of contamination in material collected in single-stream operations may have factored into China’s decision to pull back from the global marketplace and impose the new restrictions, which have slowed its imports to “a very tight trickle,” she says.

The decline of China as a destination for scrap has presented a slew of hurdles for brokers and traders. Sellers have had to search for other markets that want the materials that can no longer go to China, especially some grades of scrap plastics and recovered fiber. Southeast Asian countries have shown promise as new markets, but several of those countries—including Vietnam, Thailand, Malaysia, and Indonesia—have instituted new regulations or temporary bans of their own due to the sudden, unmanageable influx of scrap imports and the proliferation of poorly regulated scrap processing operations, many of which reportedly were launched by Chinese firms.

The trend toward globalization extends beyond China, however. Leone says that when she began trading recovered paper in 1989, “I was a domestic mill buyer … [without] a lot of exposure to export markets. My only international [experience] was that I bought from Canada.” Contrast that with her work at WestRock today: “Now, we own a mill in India, so we export and manage the U.S. fiber supply into India, … and I also work in Mexico quite a bit,” she says.

The rate of international change isn’t slowing, either. New global destinations for scrap continue to emerge and gain distinction, with traders highlighting countries in Africa as well as India, Brazil, and Peru as ones to watch. The next few years will be “interesting trying to figure out where markets are on the global spectrum,” Mallin says. “Who knows who the next China will be,” or if U.S.-based scrap businesses will seek more domestic buyers for their scrap, he says.

The advent of overseas trading also forced brokers to learn more about logistics and transportation over the past 30 years. That sector, too, has faced increased regulations as well as shortages of workers, containers, and ships at various times. “Freight regulations have gotten so drastic that sometimes it really limits who you can do business with, based on geographic location,” Mallin says. The combination of increased import regulations, more robust security measures, a tight trucking market, and more complex routes and logistics has pushed up freight costs in many cases. That presents added difficulty in brokering international deals, even when working with customers with whom “you have a great relationship,” Mallin says. Sometimes, “monetarily, you just can’t work it out.”

A changing trade climate

Globalization has “no doubt … completely revolutionized the scrap industry” over the past 30 years, McKee says, but he and others wonder whether the industry is entering “another cycle in terms of it changing all over again due to regulation and geopolitical discourse.” Tense political relationships between the United States and other countries—namely China, Canada, and various European Union countries—have resulted in a trade war. Other countries have responded to U.S.-imposed tariffs on steel and aluminum imports by imposing their own tariffs on dozens of items, including scrap in some cases. “We’re getting boxed in on the government mandates, and the political landscape is changing with tariffs,” Leone says.

China’s policy changes to date have been less dire on the metals side than for plastics and fiber, but metal commodities—especially aluminum and steel scrap—are more acutely experiencing tariff-related challenges right now, traders say. The tariffs and higher quality demands have “been choking us the past 12 months,” Daoud says. “We have no control over our market anymore. It’s not [based on] supply and demand, but regulation and the political environment.”

The regulatory and tariff changes contribute to significant market swings and instability, which create “a big challenge … to anybody moving scrap,” McKee says. “On both the supply side and the consumer side, you want to have consistent markets.” Glick agrees that the most pressing challenge for scrap brokers right now is “[navigating] the chaos caused in the global trade war.” Some scrap has seen a “decrease in value of 40 to 50 percent in the last four months. You don’t have to be a rocket scientist to figure out how that affects your bottom line.” Tri-State Iron & Metal typically exports a significant amount of Zorba (ISRI’s specification for shredded nonferrous metal), for example, and “always had lots of foreign buyers interested in our product. With the tariffs, that business has totally dried up,” Glick says.

Questions about the level of permanence of each governmental move add to the instability. Brokers aren’t sure whether to put in place more long-term strategies, or if the trading environment will soon change once again, rendering those strategies obsolete. “Supply, demand, and quality were always an issue … but now we have governments stipulating policy changes” with little advance notice, Leone says. “It’s not something you have the ability to work with.”

Even if the duration of such destabilizing events is uncertain, the impact is clear. “These geopolitical moments are changing the face of the scrap industry,” Holaschutz says. “It is truly affecting the way we do business and forcing us to be more creative, find different ways to work, and evolve as an industry.” As Glick puts it, “to sit here and wait for things to get better is no strategy. … We have changed our procedures and processes, and how we make our product and market it.”

Learning from the past

Though the technologies used and the locations of trading partners will continue to change, the basics of conducting business in the scrap industry endure. That means less-experienced brokers and traders can learn from their more-experienced peers—but the opposite is true as well. Older generations of traders watched and participated in countless transactions, and “from them I learned about the art of negotiation,” Leone says. But she also has become more adept, she says, at “focusing on what a customer is really asking for. I would say our younger generation does that better, quite honestly.” Leone would like to see scrap industry veterans invest more in the industry’s new entrants. “We need to encourage more young people to get engaged, such as through ISRI. That’s a big opportunity,” she says.

Traders recommend facilitating the transfer of institutional knowledge across generations. “When the older guys talk, you’ve got to … be a sponge and soak up” what they say about how they operate, including their perspectives on accountability and business structures, says Daoud, a millennial. “Even just their knowledge of metals that the younger generation hasn’t picked up.” That being said, he also has learned from peers in his generation, he says. “Find a way to blend how the industry was run prior to your arrival and how it will be run going forward. Everyone has a lot to bring to the table.” Above all, Daoud says, “Keep an open mind, be ready for change, and be more proactive than reactive.” And be prepared for more turbulence ahead. “Change is constant. I think we will continue to evolve,” McKee says, not just on the technological or global front, but also with “more diversity in our industry. … Today, we’re fortunate to have more and more different types of people. I love it.”

“This is going to be a very interesting time for all of us in the industry,” Holaschutz says. “It’s going to be difficult, but it’s going to be exciting as well.”

Katie Pyzyk is a contributing writer for Scrap.

(SIDEBAR)

Is it time for online trading?

As more and more aspects of modern life have moved to the Internet, so too has scrap trading. With online scrap trading platforms, today you can buy and sell scrap with “just another transaction on the cellphone … like ordering Uber Eats,” says Andy McKee, president of materials trading for Schupan & Sons (Kalamazoo, Mich.).

Although the traders interviewed for this story say such platforms have not yet become popular in North America, they may have caught on in other countries, where traders wish to gain better access to the global marketplace. The proliferation of online trading platforms based in India as well as Middle Eastern and Southeast Asian countries, many of which specifically encourage contact from North American clients, seems to support that idea.

Traders give a few reasons for their hesitation. “There’s still something very special about communicating directly” and conducting in-person visits with both buyers and sellers, says Sammy Holaschutz, a nonferrous trader with W Silver Recycling (El Paso, Texas). That’s important not only for building relationships and figuring out customers’ needs, he says, but also to better understand the specific characteristics and qualities of the brokered materials. “There’s variation among metals and grades” that brokers should observe and discuss in advance for the “seller and buyer to have a successful transaction,” he explains.

Howard Glick shares that concern. Online trading might provide the ease of “just plugging in X amount of commodities for Y amount of price, but … you would have to have a margin of error in there because you don’t know what you’re buying,” says Glick, president of Tri-State Iron & Metal Co. (Texarkana, Ark.). Scrap commodities are considered somewhat unique items to trade because “although there are standards you have to meet, every processor makes scrap a little differently,” he says.

With traditional trading, “the responsibility is all on the broker,” points out Nini Krever, export sales manager at Wilmington Paper Corp. (Pine Brook, N.J.). ”Maybe that’s why the online trading platforms sound like such a good idea to some people, because it probably spreads around the responsibility.”

Online trading services tout benefits such as convenience and multi-market transparency. The different platforms allow customers to check commodity prices, drum up new business, and in some cases, foster business relationships. Nearly all of the sites have desktop versions, and some also offer mobile apps. The below list is a sample of some well-known sites.

AmeriScraps: Covers most scrap commodities, including electronics. www.ameriscraps.com/AmeriScrapsWeb

iScrap App: A mobile-device-friendly application with a primary focus on pricing lists. iscrapapp.com

merQbiz: Devoted entirely to recovered paper trading. www.merqbiz.com

Metal Exchange Direct: Claims to be the world’s first online metal information provider. metalexchangedirect.com/med/index.php

RecycleInMe: An online metals brokerage based in India. www.recycleinme.com

RecycleNet: Offers a matching service for scrap, waste, and byproducts; a scrap commodity price information service; and a recycling offset credit program. www.recyclenet.com

Scrap Connection: Focused on forging trustworthy scrap business relationships. scrapconnection.com

Scrap Monster: Provides metal prices for the United States, United Kingdom, China, and India. www.scrapmonster.com

Scrap Register: India-based site featuring a wide variety of scrap commodities, including construction scrap. www.scrapregister.com