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Maintaining possession

Features - Scrap Metals Report

Demolition contractors continue to welcome the income boost provided by scrap metal— provided they can protect it from thieves.

Brian Taylor January 14, 2014

Demolition contractors with scrap to sell in 2013 continued to enjoy healthy pricing throughout the year as global demand for scrap iron, aluminum and copper provides a floor on metal values well above the prices veteran contractors remember from 15 or 20 years ago.

The historically high value of scrap metals has been one of the bright spots for demo contractors over the past several years, in a business climate with less overall activity and exceedingly competitive bidding circumstances.

While prices fetched for scrap metal can yield a needed source of income for contractors, a less welcome side effect has been the growth of metals theft—of copper and brass in particular—at jobsites and from abandoned buildings that would otherwise have yielded a better metal harvest.
 

Retaining buoyancy

Properly calculating the amount of steel, aluminum and copper scrap present in a vacant building continues to be a vital part of every walk-through, as prices paid for scrap continue to comprise a major component in offsetting the costs of labor and capital equipment.

On the ferrous scrap side, steel mills paid from $335 to $375 per ton for No. 1 heavy melting steel (HMS) scrap in 2013, according to the Raw Material Data Aggregation Services (RMDAS) ferrous scrap survey conducted by Management Science Associates, Pittsburgh.

Such mill pricing at the upper end of that scale allows scrap dealers to pay “in the range of $270 to $330” per ton, says Mike Taylor, executive director of the National Demolition Association (NDA), Doylestown, Pa.

Structural and plate steel can account for as much as 60 percent of the weight of a multistory office building or an industrial or warehouse building, so every additional dollar in the scale price of ferrous scrap can benefit a demolition contractor or property owner.

From 2005 to mid-2008, as ferrous scrap prices hit unprecedented heights—nearing $800 per ton for mill buying prices—the price of steel scrap was enough to give the green light to a demolition project that may have been on hold in other circumstances. “When the Chinese ‘overheated’ the scrap market back in 2006, ’07 and ’08 there was definitely a lot of demolition activity tied to their incredible demand for scrap,” says the NDA’s Taylor.

On the rise

If steelmakers around the world are producing in larger volumes, there is generally a positive correlation that follows in the price that demolition contractors receive for their scrap iron and steel from scrap processors.

As of October 2013, the last month for which statistics were available as of press time, the World Steel Association (WorldSteel) was reporting strong production figures for steelmakers in nations around the world.

The Brussels-based organization says crude steel production reached 134 million metric tons in October in the 65 countries reporting figures to it. That total marked an increase of 6.6 percent compared to October 2012.

Leading the way was China, which reported monthly crude steel production of 65.1 million metric tons, a 9.2 percent increase from the previous October.

Steel production in Turkey, the largest volume overseas buyer of American scrap iron and steel, was 3.1 million metric tons, up by 6.9 percent compared to October 2012.

Mills in the United States produced 7.4 million metric tons of crude steel in October 2013, an 8.7 percent increase compared to October 2012.

The crude steel capacity utilization ratio for the 65 countries in October 2013 was 77.5 percent, a 2.5 percent improvement from October 2012, although the capacity rate for the month was down 1.8 percent from September 2013.

Prices that remain relatively buoyant are still helpful in giving the go-ahead for a demolition project, says Leonard Cherry, president of demolition contracting and construction materials firm Cherry Cos., Houston. “Scrap prices in the markets we serve have held nicely over the last year, consequently the pricing has had a very positive impact,” says Cherry.

Overall in 2013 and into 2014, Taylor says he thinks the impetus for most demolition activity has shifted to making up for the property market slowdown that occurred from 2009 to 2011.

“I think most of the demolition activity you are seeing now in the U.S. and Canada comes from ‘pent-up demand.’ If you don’t demolish anything for two or three years this tends to create a backlog,” says Taylor.

Whichever factors prompt demolition activity, demo contractors have been gratified that as 2013 came to a close, ferrous scrap prices were strengthening in the U.S. market. RMDAS prices for the November mill buying period showed mills paying $27 per ton more for No. 1 HMS compared to the previous month, reaching $375 per ton.

As of press time, reports pointed to mills and export buyers paying even higher prices in December, ideally meaning demo contractors working through the winter months will fetch a good price for their scrap iron and steel.
 

Too hot to handle

The boom in China’s economy that was a factor in higher scrap iron prices during the past 10 years has had perhaps an even bigger impact on global copper demand and pricing, and an effect on aluminum demand and pricing as well.

Veteran contractors can recall copper and brass scrap prices tied to Comex or London Metal Exchange prices that often used to hover in the 70-to-90-cents-per-pound range. However, the boom in China’s infrastructure spending, industrial sector and consumer economy have kept copper prices above $3 per pound for several years (with the exception of late 2008 and early 2009).

The volume of copper wiring or brass fixtures and tubing may not come close to the amount of steel in an abandoned building, but the escalating value has made it an important component of the job estimate and demolition process.

Along with the opportunity to boost demolition revenue thanks to the value of copper has come the risk of losing out on that revenue by being a victim of theft.

In some cases, contractors arrive at a walk-through to find large amounts of copper wiring or piping already removed, either by the owner or by thieves who specialize in stripping the nonferrous metals out of vacant properties.

As nonferrous metals prices have risen, thieves have widened their scope beyond vacant buildings and into stealing from active job sites (demolition or construction) or industrial or commercial properties that are closed overnight or for the weekend.

In the demolition sector, Cherry says contractors have had to wearily concede that the problem is not likely to go away soon. “This is a never-ending battle that only intensifies when the values increase. From a demolition perspective, it’s ‘lose the scrap/lose your profit,’” he says.

Taylor likewise sounds resigned that demolition contractors will be struggling with keeping their scrap metal secure for the foreseeable future. “Metal theft is always going to be a problem for the demolition industry,” he says.

There are steps that can be taken, he also notes. “Most contractors try to move their stockpiles off site as quickly as possible to avoid [theft],” says Taylor.

The Institute of Scrap Recycling Industries Inc. (ISRI), Washington, D.C., maintains a metals theft alert system in coordination with its scrap processor members and law enforcement agencies.

A survey of metals theft alerts sent to members of ISRI’s Northern Ohio Chapter in 2013 demonstrates that building sites remain a prime target for thieves:

  • In November in Columbia Township, Ohio, west of Cleveland, four trench box spreaders (used to secure sidewalls in trenches) worth approximately $2,100 were stolen from a remote construction site.
  • In October, an alleged thief was caught in progress at a Cleveland Clinic demolition site in that city as he gathered “scrap pipe [and] large pieces of scrap metal” into his van.
  • A much larger scale scrap theft occurred in September at a staging area for a “large infrastructure project” in Magnolia, Ohio. The value of the aluminum and copper supplies stolen “may exceed $100,000,” according to ISRI’s theft alert notice.

On scales large and small, metals theft continued to victimize contractors in 2013 with little sign that such attempts will diminish in 2014.
 

Sunny forecast

Metals industry analysts are largely in agreement that demolition contractors will be able to continue cashing in at the scrap yard scale house in 2014 (as well as needing to strengthen their antitheft defenses).

A mid-December 2013 summary of analysts’ reports from Investor’s Business Daily, Washington, concludes that “forecasts call for mild recovery in global demand” for steel in 2014 and that among publicly traded steelmakers, “analysts are pointing to rebounding profitability across the group in 2014.”

The World Steel Association’s forecast for global production in 2014 predicts “world steel demand will grow further by 3.3 percent,” which follows 3.1 percent growth in 2013.

Meanwhile, the price trend for copper has been positive as well, with prices having risen 12 percent between June and December 2013. A mid-December 2013 report from Bloomberg News indicated that inventories of finished copper around the world were at their lowest point in the previous 12 months, which usually points toward rising prices, especially as manufacturing output in the second half of 2013 rose not only in China but also in the United States and Europe.

Provided demolition contractors can keep their copper and brass scrap safe from thieves, they should continue to enjoy good pricing in early 2014.

Demolition contractors have seen plenty of economic rebound “false starts” since 2009, but ideally the cash returns brought by scrap metal will remain one of the positives again in 2014.

 

The author is editor of Construction & Demolition Recycling and can be contacted at btaylor@gie.net.

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