Metal Movers: Battle for the US scrap throne

Author Argus

Listen to the inaugural episode of the Metal Movers podcast series. This episode covers the US scrap market, spotlighting recent acquisitions and mergers.

The US scrap metal recycling industry is undergoing a wave of consolidation, with mergers and acquisitions driven by scrap-hungry and cash-flush steel mills ramping up over the last few months—with so much competition that it is beginning to feel a bit like a certain dragon-filled HBO drama.

In the debut episode of the Metal Movers podcast, Argus Editor Blake Hurtik and Vice President of Business Development Jennifer Betts discuss the flurry of activity, what it means and what’s to come.

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Blake: Hello, and welcome to this podcast, brought to you by Argus Media, a leading independent provider of energy and commodity pricing information. This is the first episode in our "Metal Movers" podcast series. I'm really excited about this. And I know Jennifer Betts, my colleague here with me today is really excited about this. We're gonna explore the latest developments across ferrous, non-ferrous scrap batteries and especially metals over the course of this series.

But today, we're talking about a topic near and dear to both of our hearts and that's scrap, particularly in the U.S. market and a lot about ferrous scrap too. So we're gonna go through kind of a very hot topic today, which is mergers and acquisitions going on in the U.S. scrap and steel space these days. As a way of introduction, my name is Blake Hurtik. I'm the editor for Argus metal prices and I oversee all of our Americas coverage. We've got a team of 11 here in the U.S., covering every type of metal you can imagine.

I've been with Argus for eight years now and really enjoying the metal space in these dynamic times. I'm based out of Houston, Texas, where we are just mercifully awaiting the first fall cold front because it's still really hot and humid here. I'm joined by Jennifer Betts from sunny Southern California. The envy of the office. Hey, Jennifer?

Jennifer: Hey Blake, how's it going?

Blake: So maybe give us a little bit of background on who you are and your role here at Argus.

Jennifer: Yes. So I am Jennifer Betts. I am the VP of business development for Argus Media in the metal sector. I come from the industry 15 years of trading non-ferrous, ferrous scrap metal. I've worked at companies like Nucor, AK Steel as well as scrap yards like Becker Iron & Metal. So I've kind of done the full raw material spectrum during my career. And I've come to Argus to kind of, you know, lend a hand, extend my experience and, you know, help promote and encourage the industry to get out there and read the news and, you know, have better educational tools at their hands for everyday business.

Blake: Yeah. You're out there doing the really hard work of making the stuff that our team produces gets into the right people's hands and the right eyeballs on it. And we've been doing a lot of news and coverage over mergers and acquisitions. It's a bit like from my old sportswriter days, covering like the trade deadline in baseball. It's pretty crazy out there.

Jennifer: Yes. It's a little overwhelming if you're trying to keep track of everything that's happened over the past even, you know, three weeks, let alone past, you know, three years.

Blake: Yeah. And that's why today I kind of wanna just run through some of the biggest, most relevant moves we've seen. Well, we could talk a bit about the implications for that. Because truly, especially when you see where we were last year because of COVID shutdowns, that impact it had on the steel and scrap market, it's done a complete 180 and we're in like a totally new environment today. I am, you know, tongue and cheek kind of dubbing this the scrap "Game of Thrones" right now because everybody's vying for what I would call literally a scrap Iron Throne right now.

Jennifer: Yes, absolutely. I mean, it's very aptly named right now.

Blake: What was the Iron Throne, if not literally a bunch of scrap swords melted together, you know...

Jennifer: Exactly.

Blake: ...repurposed and reused. It's kind of a beautiful thing. But to take my metaphor a little further here, I mean, I think you've got Nucor, they're like the Lannisters. They're really deep pockets, you know, really well established. You've got I think U.S Steel is like the Targaryens, so they're, you know, used to be the most dominant factor out there and now they're coming back. So they've acquired a couple EAF dragons. Right?

Jennifer: Yeah.

Blake: And now they're coming back. Cleveland-Cliffs up north and they're like the Starks because they were kind of regional and focused on one thing. And now they're getting into, one of the largest flat roll steel maker all of a sudden and really making moves. And then even up north in Canada, I think you've got like American Iron & Metal up there. Like maybe Herb Black is like the King of the North, you know, making some moves into the U.S. So I'm gonna end it there because the metaphors are just getting messier and the more...

Jennifer: Yeah. We're just gonna say that's to season three. We're not gonna do seasons five and beyond, those that still hold.

Blake: Yeah. But anyway, it's exciting to see how everybody's making very strategic moves right now. And for, you know, a lot of kind of fundamental reasons out there. So let's just get to it. I mean, let's start with the top here. I mean we're recording this right on the heels of the big news breaking about Cleveland-Cliffs buying Ferrous Processing and Trading or FPT as the market knows them as most commonly, Detroit-based scrap processor, large operation, 22 locations, 5 shredders. According to the release that we reported earlier this week, Brad McCauley, our reporter in Pittsburgh had the story. 15% of the prime scrap market in the U.S, which is a big chunk per their kind of stats. 775 million dollars for this one too.

Jennifer: Just a small chunk of change. That's all.

Blake: Yeah. I mean, you know, and put it in context, steelmakers are printing record profits right now with steel prices where they are today. Hot rolled coil, just a shade under $2,000 a ton, while scrap is obviously been a little bit flatter. So margins have been very, very wide for steelmakers and they're putting their money to use here now. And Cliffs being the newest, you know, probably steelmaker to the electric arc furnace steelmaking game now has some scrap that they're gonna be able to control a bit better. How does this deal strike you?

Jennifer: You know, if you're thinking like management at Cleveland-Cliffs, I mean, honestly FPT is gonna be your best and first choice. If you're trying to take a page from the Nucor and the STI playbooks who are literally crushing it in terms of margins this year, you need to secure your scrap supply. If you're switching from an integrated model and you're moving towards EAF, electric arc furnaces that use more scrap in your steel-making process, you need to get into the scrap game and you need to do it quickly.

So instead of going and buying one, two yards here and there and taking decades to get up there, you go for an already established, already has contracts with a lot of the industrial accounts that secure the busheling. The prime is really the main scrap grade that you need to make that high-end steel, FPT is a clear choice for you, especially because of their locations. Their locations are essentially surrounding the Cleveland-Cliffs mills. They're in the vicinity. So you're not gonna have huge transportation costs. You can make sure that your scrap flows are going to those mills and they're profitable. I mean, that's also an added bonus of securing that large and that successful of a scrap company.

Blake: Yeah. This was a splash for sure. I mean, if you're gonna make an entrance into the scrap market, this is a headline grabber for sure. And to kinda your point, I mean, the geographies overlap very sensibly. So you have FPT very much involved in the Detroit market in Northern Ohio. And where is Cliffs making most of their high-end steels these days it's right in that kind of Midwest, upper Ohio valley area. So with the old AK Steel and ArcelorMittal, Assets up there. And I think it's gonna be fascinating to see what it does once...this deal is expected to close by the end of the year, sometime in the fourth quarter. Once that actually goes through how this changes up the supply dynamics up there, because, you know, you have really one of the largest independent EAFs in the Detroit area up there. BlueScope's North Star mill, which, you know, is kind of one of the biggest kind of spot buyers out there because they don't have any recycling operations of their own. FPT, obviously a natural supplier to them as well. Now that they are gonna be wearing Cliffs polos around, you know, could change market dynamics a little bit. And I think competition for those industrial accounts up there is gonna get really hot and contested going forward right now.

Jennifer: Yes. Absolutely. Obviously, I think most people are thinking all of the tons that FPT does is gonna go to Cleveland-Cliffs. That's what people are thinking. That's why Cleveland-Cliffs is, you know, purchasing FPT. If you take a look at Nucor and STI's playbook though, they don't always do that. They don't always send their own scrap to their wholly-owned steel mills. They're gonna do that a lot of the time, but if there's an opportunity to make more money and to essentially charge your competitors higher dollar amounts for scrap to kind of squeeze their margins, they're gonna do that.

And so, yes, I think there's gonna be probably some supply cut off from North Star, but it's probably not gonna be as great as what people think. I think you're still gonna wanna see tabs being kept on what competition is doing. And that is how legally you can get around it. If you're competing with someone, you can still do business with them and it's not antitrust by finding out essentially what they're paying for their scrap. It's a way that other CMO companies and other trading companies have handled it in years past. And this is gonna be a good way for Cleveland-Cliffs to get into that game and get into that knowledge game.

Blake: Yeah. The dynamics are gonna be fascinating to watch play out here. You know, we'll probably start seeing some of that coming into past late this year into early next year. And I think kind of the other big ones moving on here just prior to this, and it feels like every week there's been a new deal. The prior week, Nucor confirmed ,made official a couple big shredder acquisitions, made by their scrap subsidiary, David J. Joseph, and their scrap subsidiaries Trademark Metals and Advantage Metals, you know, subsidiaries of subsidiaries.

But all that to say, Nucor's David J. Joseph bought Grossman Iron in St. Louis, which is your old neck of the woods when you were working at Becker. Mega shredder there located on the Mississippi River and also Garden Street down in Fort Myers, Florida, shredder there on the Gulf Coast of Florida. You know, to these, you know, the Grossman acquisition makes a lot of sense. It's right on the water. Nucor is the dominant consumer along the river system for, you know, tonnage of, you know, shredded or busheling, whatever it might be, traveling by barge, gives them a big presence there.

They've got new capacity coming online on the Ohio River with their expansion at Gallatin and the new plate mill in Brandenburg, both of those are in Kentucky. So again, just about securing more of that piece of the pie in their kind of dominant regions. I mean, you obviously you're familiar with Grossman having traded in that area. How do you see this kind of maybe changing the dynamics maybe on the river?

Jennifer: I think this gives Nucor a really great competitive advantage for switching up their tons internally. St. Louis is a really great strategic market for scrap. And my time at Becker, it really kind of was an eye-opening experience because they're essentially located on such a major waterway. You can go up the Ohio River, you can go up the Mississippi, you can go down to Mississippi. It essentially allows you access to multiple markets for relatively similar breaks.

So for Nucor, this is gonna be fantastic. Okay. One month maybe one of their mills on the Ohio River is coming up short. FPT might be sending a lot more of their tons to Cliffs' mills and so they gotta cover that. Well, Grossman's located in an area that they can easily send a barge up the Ohio River. Okay. Let's talk about Northeast Arkansas, Nucor mills. They're coming up short, maybe Big River is getting really competitive and sucking up all of the tons in that area. Okay. Well, now Grossman can send their tonnes down to those mills. It's going to be very well positioned for Nucor in that area. And that's really one of the areas in the country that they haven't secured any yards. I believe the closest yard before that would've been possibly outside of Kansas City, like Missouri, and then you gotta go leave an hour or two east into Kentucky. So this is gonna be really great for them.

Blake: Yeah. It continues a trend for them, I think. It's kind of a fundamental reason thing but driving a lot of...other than steel makers having a lot of money to actually make these kind of acquisitions right now because of the record here they're enjoying. But it furthers a trend that we saw dating back a year or two, where they bought, you know, some shredders in the Louisville area in Kentucky, like you were saying, ahead of the new capacity coming online to kind of be ready to supply that with local tonnage and expand that footprint.

So, yeah, I mean, it makes a ton of sense. I think it just makes the river market you know, Nucor is outsized kind of like being the dominant player there, just continues to grow. So anybody playing on that market now, you know, has definitely taken notice. The Garden Street acquisition is interesting to me. I mean, Trademark, they're DJ's subsidiary down there in Florida, it's, you know, the dominant recycler now in that state adds another shredder.

You know, and one that's probably more geared towards the export market more than anything. But you know, to me, that's an interesting play as well, kind of submitting their position there. And what has become a bit more of a competitive market too because earlier this year too, we saw Peruvian steelmaker actually buy a shredder outside of Tampa that used to be operated by Grimmel so they can send export cargos to Peru. You know, they're a regular buyer of U.S scrap.

So that the market's actually been kind of a little bit more active without a lot of steel making capacity actually nearby in the state. Nucor has like the little mini-mill or micro mill, I guess, in Frostproof but, you know, they're looking at multiple angles at this. I think that's what it shows.

Jennifer: Absolutely. I would not be surprised if the Peruvian acquisition really spurred their M&A activity in Florida. They already dominate Florida from a scrap perspective. If you take a look at the scrap yards that are currently in Florida, and then you mark off all the ones that are owned by Nucor or DJJ Trademark Metals, it's gonna be covered. There's been a few key players that have been independent but you're starting to see them get bought up.

And so if they wanna keep tabs on what's happening with some of their competitors, or to make sure that their scrap flows import or export are not heavily threatened, this makes sense. Pick up one of the larger, independent options in the area, especially when it's, you know, at such a large import-export port for scrap

Blake: Well, and that kind of leads me to the next kind of company I wanted to focus on today. It's also been active in Florida but on the Atlantic Coast, SA Recycling. We've been talking about steel mill-driven acquisitions so far, which is a big part of what's happening, but the kind of large independent recyclers out there that aren't affiliated with the mill have been very active as well, and none more so than SA Recycling.

So a California-based company, very dominant presence in, you know, Southern California and through the Southwest but also increased in the last five years, very much a big player in the Southeastern U.S., buying up shredders like New Recycling several years ago, and some other acquisitions. They bought several yards on the east coast outside of Miami over there, trying to take advantage of the container export market over there. And then most recently too, buying a shredder up in Nashville, Southern Recycling, which also had a couple feeder yards as well.

And then a couple of deals in the Atlanta area, we reported over the last week as well, to kind of expand their kind of footprint, the dominant presence kind of in the Northern Georgia market. So yeah, I mean, I think, you know, it just shows kind of where we're at today. Everyone's kind of looking at what they do best and how to best kind of to your point, enhance that competitive advantage they might have.

Jennifer: Yes. Absolutely. And SA has definitely done that. If you take a look at the past 5 to 10 years, the shift of steel-making capacity has moved to the south. And 100% of the steel that's manufactured in the south is made from electric arc furnaces that need scrap. So it makes sense for SA that started off as, you know, Southern California company to start making waves on the export front on the East Coast, and then slowly growing into a large section of the Southern market.

They're going to be a more dominant player and it always is somewhat humorous to me when I talk to a new purchasing agent that's new to the minerals industry, and they're always surprised to hear "Well, wait, I'm buying more of tons from you. That should be a discount." Well, not in our industry. If you have more tons to sell, typically you can get a better price. And so if you have more scrap yards, you're gonna be making more money because you have more tons and more power to really push on those prices towards your consumers.

Blake: Well, and that always threw me in for a loop, having started my career in commodities and agriculture, where yeah, volume meant a discount and it's the exact opposite in this world. But I mean, really, I think the mill-driven activity we've seen, it's kind of spurred an arms race here to make sure you're shoring up your position. So for the SAs of the world in the, over recent years, you're seeing alter trading up in the Midwest, be really active expanding. PADNOS, you know, basically making sure they have their presence there to make sure they have a seat at the table here and it's not totally, you know, just dictated by steel mills. I think obviously it becomes harder and harder for the little guy to compete moving forward here. You know, and I don't think we're done with this activity.

Jennifer: No.

Blake: A big one's been on the trading block so to speak for a while now. Icon Enterprises, which owns PSC, has been exploring a sale for them. You know, we're talking like eight or nine shredders, multiple locations across kind of the Southern to St. Louis up the river, up into Ohio kind of areas. So that's an interesting one to watch for who might acquire that because that's a lot of volume right there.

Jennifer: Yes. Absolutely. If you take a look at some of the other steel mill companies that do not have such a large, you know, swath of scrap yards that they own or any at all, I mean, that would be, you know, for certain steel mills, like Gerdau or SSAB, I mean, PSC could be a viable option for them to get into that scrap game. Honestly, when, you know, the CEO of Cleveland-Cliffs announced at ACL conference a couple months ago that they're gonna get into, you know, the scrap game, immediately everyone starts creating the list of who's gonna be the top people. Who's gonna get acquired.

And PSC almost always made everyone's list as at least like a top-three candidate. So it's possible that Cliffs is not done purchasing. It's possible that perhaps Nucor or SDI or other EAF steel mills are still interested in PSC. So I don't think we're done in that regards.

Blake: Yeah. I think any of them are viable options right now and some of the larger, independent guys up there. And we've seen people come out of left field, like we're talking about with Aceros Arequipa in Florida from out of Peru. We've seen American Iron & Metal buy a shredder in Phoenix, you know, kind of, you know, it wasn't really on many people's radars, I don't think, and Herb Black's told our Brad McCullough that they're looking to expand to the U.S further to kind of, you know, enhance their kind of position as he maybe thinks about kind of their future and legacy. You know, and to your point too, I mean, you have U.S Steel out here, who also is new to the EAF game via they built the EAF in Alabama at Fairfield, they acquired Big River Steel in Arkansas, which has now doubled its capacity, is ramped up, be more integrated into their steel maker processes. They just announced the new 3 million tonne mill to be built we don't know where yet. That will probably definitely determine maybe some activity. But you know, the name of the game now is make sure you have a piece of the scrap game and they don't have it yet. So I think that's one also maybe to keep an eye out on moving forward.

Jennifer: Absolutely. And you know, tick-tock, you know, to avoid some taxes with all the profits people have been making this year, we need to see some more acquisitions before year-end. Companies are flush with cash right now, and it makes sense, you know, from a raw material standpoint but also from, you know, a corporate tax strategy to make some purchases before the year ends,

Blake: See, I like you bringing that accounting aspects of this. Because my brain probably wouldn't have thought of that. Again, I think the general trend we're seeing right now is this new capacity. You mentioned the U.S Steel mill, Nucor also building a new 3 million ton sheet mill. They've said that one's either gonna be in West Virginia or Ohio or Pennsylvania. Odds are that's probably gonna be near a river, I would say, the Ohio River, just given where their raw material is coming from.

And you know, they've obviously said they're gonna be building and putting in a new melt shop out west at one of their existing bar mills, which they are currently melted in Seattle and Utah. They don't melt in Arizona. So that to me seems like, you know, if they're gonna pull it in, that's where they're not melting but you never know. I think Cleveland-Cliffs in their FBP announcements said they have no plans to build a new EAF mill but they've previously told us that they in the future, maybe even more long term are expecting to get more in the EAF game, you know, to say competitive.

And I think you're seeing now too so much shifting towards Nucor making the announcement for sending Green Steel to GM, supplying them with this new carbon, you know, neutral steel. And EAF is obviously your way to get that easier than if you're going to traditional blast furnace route. So definitely the wind's blowing that way. And it feels like, you know, that's gonna continue to drive more and more investment in the EAF space. And scrap is only gonna become, as Cliffs has said, it's the new precious metal. Humble old scrap metal is now a precious metal. I dunno if I buy that quite but it definitely is that the demand arrow is pointing up I think.

Jennifer: Yes, I agree with the precious metal aspect, if we keep shifting capacity from integrated to EAFs, I mean, you're already seeing it in the South where 100% of it is made from, you know, scrap metal, essentially. We're gonna ignore the iron metallics substitutes on that front. But generally speaking, that is going to be driving where steel production is coming. You know, that's where the latest and greatest technology is. That's where you can get your greater profit margins is in the EAF world. So it makes sense for these companies to start moving that way.

If you're having trouble keeping track of all the mergers and acquisitions that have been happening, Argus keeps tabs of that. And we produce a data and downloads list for all of our metal subscribers. And so that's available on our website at any given point. And we also keep tabs of the upcoming capacity that's coming online in the steel and metal world as well. So if you are a subscriber, check out the platform. If you are not, feel free to reach out to us, and we can talk to you about options that Argus has.

Blake: And our team does a great job of staying on top of this. Every deal we can confirm and track down, covering as it happens. Email news alerts will be blowing up your inboxes with all this activity, I'm sure. So keep an eye out because it's only gonna continue to grow. And that tracker that we've launched, that list is gonna get longer I think here. So it's an exciting time. It really is.

Jennifer: Yes, yes, it absolutely is. Keeps it interesting.

Blake: For sure. Well, thanks Jennifer for joining me today and on our inaugural "Metal Movers" podcast here, I think we covered a lot of cool stuff and hopefully, we'll be doing more of these in the future.

Jennifer: Yes, I hope so. I look forward to the next topic that comes up.

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