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Sluggish Economies Abroad Pressure U.S. Scrap Prices

Declining metals prices are pinching profitability for scrapyards.

Scrap consumers are paying them less but yards are forced to pay their customers more to get them to sell in a deflated market.

“When prices tend to come off there’s less incentive for people to bring materials into the yards because they’ll get less money for it,” said Joe Pickard, economist for the Institute of Scrap Recycling Industries (ISRI).

Metal prices have dropped as overseas demand has softened due to slower economic growth abroad. Export prices have also declined as the U.S. dollar has strengthened in comparison to foreign currencies.

As of Sept. 30, U.S. exports of all scrap commodities had decreased 12 percent year-over-year while the dollar value of imports had increased by 5 percent, according to the Nov. 7 issue of ISRI’s Friday Report, a weekly compilation of economic, commodity and scrap market highlights for the trade group’s members.

“Because there’s more capacity to process materials, people have to bid more to get materials to feed the shredders,” Pickard said. “When the prices you pay rise and the prices you get for selling are softer that cuts into your profitability.”

Processors have added and upgraded shredders in recent years to cut their processing costs. “It’s a race to the bottom of the cost curve,” Pickard said.

With a net gain of 12 installations, the North American shredder market expanded by 4 percent in the past three years, bringing the total to 365 shredders, according to an article in the Sept./Oct. issue of Scrap magazine, an ISRI publication.

Scrap Publisher Kent Kiser wrote in a blog post on ISRI’s website:

Changes in the number, size, type, and geographic location of shredders not only indicate trends in the shredding niche but also can suggest the overall health of the scrap industry. From roughly 2001 to 2010, for example, growth in the installation of large shredders was a sign that processors wanted to shred more scrap that previously was sheared and boost their throughput tonnage to meet higher demand for low-residual frag. In more recent years, the large-shredder trend has slowed, and smaller shredders have gained popularity by allowing operators with modest input tonnage—and more limited financial resources—to enter the shredding fray.” 

Consumption should increase as economies strengthen in the U.S and abroad. “It’s much more of a global marketplace for scrap today,” Pickard said.

Though U.S. policy makers are scaling back monetary stimulus, foreign counterparts like the Bank of Japan and European Central Bank are dialing it up as they seek to jumpstart their economies. Pickard said, “We’re still not firing on all cylinders but compared to other economies we’re doing pretty well.”

Click here to learn how you can use Scrapyard Pro’s customer retention and rewards programs to keep your business growing even in down times.

11/21/2014

Scrapyards Squeeze Spending

If tough times don’t last they certainly linger.

A prolonged slump in scrap prices is prompting recycling centers to scale back or sell—and the pressures are likely to continue.

The total value of U.S. exports of all scrap commodities to China, whose once voracious appetite for commodities has weakened with its slowing economy, declined by 10 percent to $3.1 billion in the first half of 2015, according to an analysis of Census Bureau trade data by the Institute of Scrap Recycling Industries Inc. (ISRI). Export sales to China totaled $3.5 billion in the same period a year ago and $5.5 billion in the first half of 2011, ISRI researchers wrote in a scrap market report released on Aug. 8.

 “The big question is going to be how long this lasts,” said Scott Horne, general counsel and vice president of government relations for ISRI.

“It’s not going to resolve itself very quickly in China. As a result, a lot of people are looking for alternative markets to develop and to grow.”

Recyclers are also restructuring operations.

“A lot of people have cut back on hours or even laid people off,” Horne said. “That’s something our members hate to do because many of them are small businesses that have been around a long time and have a commitment to their labor force.”

Some businesses are selling their yards to other recyclers because plunging scrap prices have made it difficult for them to survive, particularly if they have not had the benefits of learning tough but important lessons from previous downturns, such as not to retain inventory too long or to over leverage.

“You can’t speculate on inventory. That’s dangerous,” Horne said. “There was a philosophy that you could buy low and wait until you could sell high but that strategy was upended in the downturn in the late ‘80s and early ‘90s because banking had become more difficult and it was a challenge for some to get financing.”

Highly leveraged recyclers eventually could not cover their debt payments during that prolonged downturn. Recyclers that entered the industry during more recent boom times may now be having similar challenges.

“A lot of people bought a lot of equipment when the market was so crazy and those who borrowed heavily to do that have felt some strain,” Horne said.

Scrap processing firm Metalico cited debt relief as a benefit of its recent sale to Total Merchant Ltd. for $102 million. Its “strengthened balance sheet will reinvigorate Metalico as a prominent force in its markets and potential acquirer of other scrap operations,” the New Jersey-based operator of scrap metal recycling facilities stated in a press release on Sept. 11.

Savvy recyclers can capitalize on the downturn, like by repairing or replacing equipment that they may not have properly maintained when they were running hard during market peaks.

“If people have socked away some money over the years, then this is a great time to be looking at becoming more efficient,” Horne said. “Anyone buying equipment right now is probably getting a deal.”

Slower markets are also ideal for investing in training and developing talent, Horne said. However, recyclers may be reluctant to spend until conditions improve.

“One can recommend but it’s up to the individual to have a good idea of their staying power and if they can take advantage,” Horne said.

Economists do not expect significant price increases soon, but Horne for one is confident that recovery is inevitable.

“It always seems to come back. If it didn’t come back we would be in a real global mess.  It wouldn’t just be us,” Horne said.

"This is clearly a global marketplace. We're not the only ones suffering."

09/23/2015

Steel Market Forecast for 2016 Slightly Optimistic

Steel market forecasts for 2016 call for a slight rebound in demand, which could boost depressed scrap metal prices.

Recovery is contingent upon consumption increasing in China, where demand and prices have dropped precipitously.

The World Steel Association (worldsteel) projects global steel demand to increase by 0.7 percent in 2016 after decreasing by 1.7 percent in 2015. “We expect the current headwinds to moderate in 2016 but this is based on a belief that the Chinese economy will stabilize,” World Steel Association Economics Committee Chairman Hans Jürgen Kerkhoff stated, in a release announcing the worldsteel Short Range Outlook 2015-2016.

Crude steel production declined by 3.1 percent in October in China compared to the previous year, mirroring a decrease of 3.1 percent in world crude steel production between the same periods, according to a worldsteel report on October 2015 crude steel production.

Steel prices have decreased by more than 33 percent in China in 2015, reaching a record low of 1,733 Chinese yuan (about $272) on Nov. 18.  “With China producing 800 million tons of steel a year—four times more than any other country has ever produced—the sector is in severe overcapacity of some 400 million tons as construction slows in the world's second largest economy,” CNBC reported in an article on why China steel prices hit record lows.

Scrap metal prices have also plunged. Sims Metal Management cited a 30 percent drop in ferrous prices from mid-September to November in announcing cost-cutting initiatives for North American scrapyards on Nov. 18.

When do you expect scrap prices to increase? And what is your steel market forecast for 2016?

Tell us and we will let you know how your predictions compare to those of other recycling industry professionals. Click here to take our Scrap Market Outlook Survey and request a copy of the results.

 

Photo courtesy of worldsteel.

11/25/2015

Prepare Your Scrap Yard for 2017

Another year is almost finished.

When it comes to scrap yard management, assessing how you fared this year will help you prepare for 2017.

Despite a post-election uptick, scrap metal prices largely hampered the recycling industry during 2016. Just the fact that you still open your doors every day means you have fared better than the many scrap yards that have closed during depressed market conditions.

But do you know just well you have fared? And, how you expect to improve in 2017?

Robust reporting and proactive planning are essential in scrap yard management. Determining your successes and failures will help you build on the former while avoiding the latter.

Follow these seven scrapyard management tips to finish 2016 strong and start 2017 even stronger.

1) Catch up on your bookkeeping.
Ensure that you have an up-to-date accounting of your revenue and expenses. Knowing how much you’ve taken in and how much you’ve spent will simplify tax season and better position you to make sound decisions during the rest of 2016, according to end-of-year business planning tips from FreshBooks, a provider of online accounting software.

2) Complete your quarterly tasks.
The year may be ending but so is the quarter. And, because of their nature, you can’t have a full year unless you have four quarters so you must close out the last three months of 2016 as you did the preceding three quarters.
Your quarterly accounting tasks should include reviewing quarterly payroll reports and making any necessary payments, as well as computing and paying estimated income tax, according to a small-business accounting checklist from QuickBooks. Your payroll services provider should prepare and file reports but you should verify their accuracy. You also should consult with your accountant on income tax payments, QuickBooks advises.

3) Fulfill your annual accounting responsibilities.
QuickBooks includes four annual accounting tasks in its checklist.
1. Review past-due receivables. Determine whether you can collect receivables that are significantly past due or will send them to a collection agency or write them off as a deduction.
2. Review your inventory. Decide if you will write-down the value of unsold items for a deduction on your year-end taxes. 
3. Complete IRS compensation forms. Fill out an IRS Form W-2 for any employee and a Form 1099 for any independent contractor whom you paid a total of $600 or more during the year. You have until Feb. 1 to mail these annual earnings reports to the people who worked for you. You must file with the IRS by Feb. 28.
4. Approve full-year financial reports and tax returns. When it comes time to file your taxes, review your financials and returns for accuracy.

4) Do year-end tax planning.
FreshBooks suggests that you meet with an account before the year ends so that you can follow any advice that they may have for reducing your tax bill. For example, you may be able to purchase some equipment for your yard that would help defray a larger-than-expected profit.

5) Run management reports.
Even if you did well this year, you will want to do better in 2017. But you can’t plan to improve unless you know how you did.
If you haven’t already, run reports like:

  • Materials bought;
  • Materials sold;
  • Transactions by customer;
  • Equipment inventory; and
  • Customer service time. 

Establish benchmarks with these reports so that you can compare your progress in 2017.

6) Plan for 2017.
Scrapyard management doesn’t figure to be any easier next year but you can be more effective. Strategic planning is crucial for capitalizing on opportunities that have arisen or may develop. Start by clarifying the business you are trying to build, according to tips for year-end strategic planning from Inc. magazine. Write out your vision for what your recycling center will look like three to five years from now. Be specific. Quantify sales and describe it qualitatively with criteria like your marketplace differentiators. Then back out your strategic plan based on your goals.

7) Re-energize.
Starting next year strong will require you to be ready. Recharge your batteries by taking time off. Notify employees and customers well in advance though so that they can plan accordingly. When you return, pour your energy into 2017. 

The past year has been difficult for many scrapyards. However, you can make the most of 2016 by thoroughly and candidly assessing your performance with a comprehensive year-end business review. Then proactively plan to do better in 2017.

Want to learn more about how ScrapyardPRO can help you run year-end reports? Contact us at (888) 552-0401 or request a demonstration.

12/14/2016

Using Yard Management Reports to Reduce Risk for Scrapyards

Running a scrap metal business requires a lot of your attention.

Whether you own the recycling center or manage it, you have to know what is happening anywhere at any time.

You have customers to service, sales to make, employees to supervise and laws to follow—just to name a few of your responsibilities. With so much to do, you inevitably must count on others to help.

Review the following scrap yard management reports at the end of each day to spot any problems.

1)      Cash Register Activity. If you are the only person who runs the cash register, then you should know what cash has been added or withdrawn during the day, and why.

Demand the same accountability from your cashiers. Require that they record each transaction they make in a ledger, along with their initials or name. Or, use software to collect and store this information.

From cash taken out to pay for lunch for employees to mid-day deposits when the till is running low, you should be able to account for every transaction, whether it involves a direct purchase of materials or not.

Recording all transactions during the day and reviewing them at the end will show you who has spent money and how. Check your opening balance, calculate your transaction totals and then confirm your closing balance to ensure that you have accounted for all of your money.

Investigate any discrepancies for possible mistakes or misappropriations of funds. 

2)      Purchases. You should pay what you owe—but not a penny more than the ticket price. Tickets show how much you should have spent—but not how much you actually have spent.

Record each transaction in a ledger, including the weight of the material(s) and the amount paid. Require your cashier(s) to do the same. Then cross check those transactions against ticket totals.

Ensure that neither you nor your cashier paid “$8” for a “$6” ticket that was hard to read, for example. Or, that a cashier didn’t pay “$50” when the ticket should have been “$5” because they read the price for a material to be “.50” instead of “.05” when buying 100 pounds. You can also use software to automatically calculate ticket totals and amounts paid.

3)      Canceled Purchases. Record each voided transaction and the reason for canceling. This will help you spot recurring errors. You could also use software to track voided transaction so that you can see if an employee may need training.

If you spot canceled purchases or overpayments that you were not aware of, investigate the reasons and respond accordingly. If it was an honest payment mistake by a long-time, dependable employee, then perhaps you point it out so that they are not likely to repeat it in the future. But if it was theft or incompetence then you may be able to recoup and/or prevent future losses by terminating an employee, and possibly seeking reimbursement.

Running a scrapyard requires you to shift your attention from one stressful situation or pressing problem to another, rapidly and frequently. Don’t miss honest errors or dishonest theft, either of which could be costly.

Review the three reports above each day to minimize risk.

04/28/2017

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We started 20 years ago as Web4Minds, a software development firm that provides custom solutions to meet our clients’ needs. One such client came to us four years ago to develop software to manage their scrapyards.

Upon receiving feedback from the client and working with dozens of others, we realized that we had created a product that stood out among the competition, so we brought our solution to the marketplace as Scrapyard Pro. It is now used at recycling centers across the country, by clients ranging from single-location owners to regional operators.