Metal recycling business goes from boom to bust

Rick Wagner • Dec 12, 2008 at 12:00 AM

ROGERSVILLE — The scrap metal recycling business has gone from boom to bust, with prices and demand low.

In simple terms, in December those bags of aluminum cans in the garage and that junk car in a field are worth a fraction of what they were in August.

“I only have one employee, and I have nothing for him to do. He painted the bathroom the other day,” said Rogersville Recycling owner Linda Jones, who nine years ago started Rogersville Recycling with her husband, Mickey.

She’s worked in metal recycling for 25 years and said this is about the worst it’s been, a stark contrast to the huge influx of scrap metal that came mid-year.

“It’s all gone south,” Linda Jones said. “We are (staying open) right now.”

Jones said her business will stay open “as long as we possibly can” and “as long as the banks keep my credit line going.”

All U.S. recycling down

Bruce Savage, Washington, D.C.-based vice president of communications for the Institute of Scrap Recycling Industries Inc., said the trade group has heard only antidotal tales of recycling businesses closing but that many are cutting back on employees and hours of operation.

“We’ve only heard anecdotal stuff,” Savage said of reports of layoffs and a few closings.

In 2007, the recycling industry — including more than metal — was a $71 billion business in the United States. Of that, $21.7 billion worth of scrap was exported, according to the association.

The group represents 1,600 metal recycling businesses in the United States, about 50 percent of the metal recyclers in the country. And that group of recyclers handles about 80 percent of the volume in this country, Savage said.

“It’s not just metals. It’s paper, plastics, about anything that can be recycled it has the same consequences,” Savage said.

He said some relief may come with a $500 billion infrastructure improvement plan China recently announced and a similar U.S. infrastructure improvement plan proposed by President-elect Obama.

“It will have some rebound but that will not be nearly what it was,” Savage said. “Demand has dropped off so much, a lot of people are not placing orders at all.”

In Rogersville, Jones is holding a load of copper for which she paid an average of $2.45 a pound but hasn’t sold because she can get only 90 cents a pound for it.

“I do know of a lot of smaller recyclers who have already gone out of business,” Jones said.

“It all started when the financial markets collapsed” about eight weeks ago, Jones said. “The metals are a commodity like oil and gas. The metals have followed suit like the crude oil has.”

She said the metal mills simply don’t need the material and that the supply of copper and other metals bought at higher prices is still in the pipeline or on retailers’ shelves, being sold based on the higher raw material costs.

Linda said the car crushers, who at the peak of the recycling craze this summer paid $12.50 per 100 pounds, are down to about $4, and that other steel is down to $1.50 a pound.

At Kingsport Auto Recyclers, part of a Bluff City-based business, crushed cars with gas tanks removed and with holes to let out any fuel were bringing $4 per 100 pounds last week.

Jones Thursday was offering 90 cents a pound for copper, down from $3 a pound in early August, while aluminum cans were fetching 80 cents a pound at her business compared to 33 cents Thursday.

Bradley Thompson at Kingsport-based Thompson Metal Services Inc., a member of the metal association, said his business is down drastically, too.

Thompson co-owns Thompson Metal Services with his father, Brad Thompson, and the business takes about all non-precious metals from the public except for vehicle batteries, whole cars and catalytic converters. The Thompsons also bought Kingsport Iron & Metal in 2004, which buys from industries.

Mark Sourbeer, Bristol, Va.-based manager for Wise Recycling Inc., who like Savage, Jones and Thompson, was interviewed in July, could not be reached for comment.

Thompson and Savage said many of the larger scrap operations are in more trouble than smaller ones, with Savage saying the larger ones had higher overhead, depended more on bank lines of credit and many had recently invested in new equipment to handle the mid-year surge in volume that has evaporated.

Savage said the auto industry has cut back on orders of ferrous and non-ferrous metals, as well as plastics and other materials, since production has fallen from about 17 million units a year to about 12 million. He said the same thing happened for makers of appliances and other durable goods.

Waste paper prices also have seen dramatic decreases because China, which used to take waste paper from the United States to make into cardboard boxes to ship products back to the United States, has all but stopped buying paper. Cardboard is not needed because U.S. consumer demand for China-made goods is down, Savage said.

And plastic prices are down because with petroleum down, it is cheaper to make new plastics from raw materials than it is to recycle existing plastics.

Precious metals, including gold, silver and platinum, the latter found in catalytic converters, also is down. Platinum, palladium, rhodium and sometimes gold was used in converters.

“Some people have just stopped doing it,” Jones said of recycling metal.

She used to take in enough aluminum cans to fill a tractor-trailer every two weeks. Now in some places, competitors are combining cans and other items to get enough for a single load.

“I haven’t sent out a load in one month, and I’ve got half a trailer load now,” Linda said last week. “We don’t even buy as much in a week as we used to do in a day.”

She said that even if prices went up, most scrap metals, including aluminum, brass, bronze, copper and steel, are in short supply because people cashed them in when prices were high this summer.

Ironically, that put supply, demand and price all low, not a normal circumstance.

“There’s just not a lot of scrap out there to be sold,” Jones said.

City sees little impact

Despite the woes of the recycling industry in general, Kingsport’s curbside recycling program hasn’t taken much of a hit from the downturn, at least not yet, said Ronnie Hammonds, streets and sanitation manager for the city.

The city contracts with Tri-City Waste Paper Inc. for curbside collection of recyclable materials: aluminum, tin, mixed paper, including newsprint, and Nos. 1 and 2 plastics.

Hammonds said the annual recycling budget was around $347,000 and the city, with this recycling contract renewed on a one-year extension effective Dec. 1, pays $5,000 a month and receives revenue back for recycled newsprint. In recent months he said those payments have been $6,000 to $7,000, although some months they fall below $5,000.

However, Hammonds said not in the calculation is the diversion of materials into the landfill, which saves tipping fees and is mandated in part by the state of Tennessee. The program costs the city about $120,000 a year, according to Public Works Director Ryan McReynolds.

For the city to handle recyclables, it would have to invest in equipment, hire employees and have more direct exposure to the volatile commodities market for recyclables.

State law may be among reasons for recycling drop

Aside from the drop in prices paid and a low supply, Jones attributed the decline in recycling to new Tennessee recycling laws that went into effect July 1.

Among other things, the law requires identification, vehicle license plate numbers, driver’s license numbers, finger prints and a signature from people recycling copper, who also must wait for their payments instead of getting immediate payment.

“We had already lost business because of the new law,” she said. Also, only licensed heating and cooling companies can legally recycle aluminum and copper air conditioning and heat pump units in Tennessee, but Jones said those have dried up because people are getting old units repaired instead of buying new ones or are doing without a unit.

Savage said the Tennessee law and others like it were well intentioned but may have done more damage than good to the recycling business, especially since demand and supply suddenly have gone so low.

He called such laws “quick and easy solutions to a rather complex problem” that may have to be revisited in the future.

Jones said her business was down 23 percent in August 2008, compared to August 2007, down 27 percent in September and down 75 percent in October.

“We are trying to stockpile it, but nothing is coming in,” Jones said.

One thing Jones said she is not worried about, however, is theft. Since metals have gone down in price, thieves have stopped targeting metals.

News reports of thefts, from manhole covers in Kingsport to widespread copper thefts, have dwindled.

“Thefts have dropped dramatically,” Savage said.

Jones said she’s heard of more break-ins and burglaries since metal prices took a dive. Catalytic converters, once a prime target for thefts, are no longer a prime theft target, Jones and Savage said.

Hammonds said the city still has some “pilfering” of its recycling bins, mainly of aluminum cans. The city also offers free old appliance pickup, coinciding with the every-other-week pickup of brush.

Appliances from pickups and those brought it to the city’s demolition landfill are recycled under contract with a metal recycler, Hammonds said.

Hard luck recycling story, outlook for the future

Jones has heard some hard luck stories from customers.

She said one couple, who had a business installing windows and siding and were regular customers, recently came in to cash in some leftover metal scraps, saying they had no projects to do, had laid off their employees and were going to use the scrap metal money to pay their electric bill.

Savage said that the only thing for sure in the recycling markets is that eventually prices and demand will go up again, probably about the same time gasoline prices begin an upward climb.

And since that will happen when the economy rebounds, he said the question is when, by mid-2009 or maybe not until 2010.

The association’s outlook in late July, pre-financial meltdown, was for a strong recycling market 2008 and 2009.

“It’s not a question of if they will go back up, it’s a question of when they will come up,” Savage said. “It all depends on the economy, when the economy comes back.”

For more information, visit www.isri.org.

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