Insidewaste___PREBIND_LR August 2016 | Page 22

Scrap metal // Run a tight ship and you’ll sail through the storm By Jacqueline Ong IT’S been a while since Inside Waste cast its eye on the scrap metal recycling sector. Things looked dismal back in 2014, with the closure of Alcoa and high profile players including scrap metal recycler CMA Corporation going into liquidation. At the time, the Australian Metal Recycling Association (AMRIA) said: “the whole creation of recycled metals is on its knees”. In April, the Australian Council of Recycling CEO Grant Musgrove, commenting on Arrium being placed in administration, said policy makers were warned in late 2015 that China was willingly or inadvertently destroying the market for steel and scrap metal. He said ACOR had forecasted a fall in scrap metal prices, which rang true, and said that there was now a global oversupply of scrap metal making the material a liability rather than an asset. According IBISWorld’s scrap metal recycling market research report, the sector has faced tough conditions over the past five years, with revenue between 2011 and 2016 declining by 5.7% annualised. “This can be attributed to falls in scrap metal prices over these years, lower output volumes from industry players, and declines or low growth in many downstream markets,” the report noted. Has the sector truly fallen on hard times? Inside Waste spoke to three players in the sector, mid-tier recycler Queensland Metal Recyclers (QMR), a national company and one from the bigger end of town, Sell and Parker, 22 INSIDEWASTE AUGUST 2016 and equipment supplier CSS Equipment to get a feel for where the sector’s at. In the strong wind even turkeys can fly One thing that all three companies agreed on was that times are tough. With scrap metal prices being as low as they are and overheads staying put, margins have naturally shrunk. “The low prices are obviously a concern for everybody. We are all struggling at the moment,” QMR owner Nick Chambers said. “The other thing we’re struggling with is that there are a few people quoting more money than what it’s [scrap metal] worth to keep clients and machinery busy and some of the big companies are guilty of doing that. When people are quoting more money than it’s worth, no one’s making any money except the client.” Chambers and Sell and Parker CEO Luke Parker were also on the same page when asked if the end of these tough times was in sight. The answer is no. “I think we’re in for a lean period for a long time,” Parker said. Parker added that the real issue was the “massive over supply of iron ore”, which continued to subdue the scrap metal market. “China exports steel and that’s where the battle is. The allegation is that Chinese mills are dumping steel and our local steel mills are struggling to compete,” he said. “The bigger issue is that there is just so much cheap iron ore and cheap energy in the market so the price of steel will be cheap. As long as the price of steel is cheap, the price of scrap will be cheap.” The survival of scrap metal recyclers will now depend on their ability to run a tight ship and keep operations lean. “The people who are doing better are the ones who are more nimble and they are the ones who can invest in equipment and processes to reduce their cost. It’s all about minimising expenses,” Parker said. “It’s all about efficiency. In the strong wind, even turkeys can fly. When things get a bit tougher, it’s survival of the fittest.” “I don’t think the end [of the downturn] is anywhere in sight and we’ve still got a lot of hard work to get to the end of the tunnel. But if you can get through the tough times and you run a leaner, tighter, and more costeffective ship in tough times, you’ll be able to get through it in the longterm,” Chambers added. When one door closes... In order to survive, a number of midtier scrap metal recyclers have turned to other avenues to generate revenue. Chambers said that was QMR’s strategy when the Global Financial Crisis hit in 2008, driving the company to deal with export markets directly. In 2009, QMR began buying equipment and today, it either chops up scrap metal with shears or compresses the material into blocks with “a big static press” for shipment overseas. If the company hadn’t done that and continued to rely on the larger players instead, it would be in dire straits today. “But because the medium-sized companies have gone out to export and deal directly with companies overseas, that has made us stronger in the marketplace,” Chambers said. “The bigger opportunities have been restricting us from growing and when they restrict you from growing, in tough times, you’ve got to look for other companies. We export directly overseas now and we don’t rely on the bigger companies. “The medium-sized companies have said [to the big guys], if that’s all you can pay us, and we know it’s worth a lot more and you guys are making plenty of money, [then] we need to also start getting that money you’re making.” There is, after all, no lack of export markets. “There are plenty people buying scrap, plenty of places to buy scrap from. What the bigger companies do is shred the metal and sell it overseas in bulk cargo. So they load a whole ship up with 10,000-20,000 tonnes. We might load 50 or 100 containers up and do 3000-4000t a month. It’s on a smaller scale. When the world economy is struggling and metal prices are falling, it’s harder to sell big cargos,” he said. CSS operations manager Neil Coyle said he has certainly noticed this shift in the last 12 to 24 months as well, and companies that were once traders and had lower volumes of material than the larger companies, were now exporters. “Obviously noticing that with the scrap prices being quite bad, a lot of the smart scrap companies started looking for an edge. In doing so, there’s been a Weekly news updates at www.BEN-global.com/waste