SCENES FROM THE NEW ECONOMY
On a cold November afternoon, as he stood in a long shadow cast by the vacant grain elevator that serves as his base of operations, Joe Frenkel took out a sledgehammer and went to work. With practiced swings, the 50-year-old Minneapolis native pounded on an industrial grade transformer salvaged “from a secret source,” methodically smashing the unwieldy hunk of iron into pieces small enough to hoist into the bed of his pickup truck.
Frenkel — “Scrapper Joe” to his cronies in his West Bank haunts — has spent the better part of two decades involved in such rough undertakings. Sometimes, the sheer scale of the work can be daunting. A while back, he and a friend tore apart a 20-ton punch press, which was located 12 feet off the ground.
But, true to the scrapper ethos that every little bit counts, Frenkel isn’t above cruising alleys for the penny ante haul, either. Those expeditions aren’t usually very profitable, but they hold an anthropological, even existential, allure for Frenkel.
“Every so often you come across a dumpster where obviously someone died. It makes you think: How big is your dumpster gonna be? How many dumpsters are you gonna need when you die?” he mused.
As a full-time career, freelance scrapping can be problematic, largely because scrap metal prices, like the prices of most commodities, are volatile. In periods of high prices, the game gets too crowded and it becomes hard to lay claim to the best scores; in periods of low prices, the pay doesn’t seem to merit the considerable exertions.
“I’ve seen the good, the bad and the ugly in this business,” Frenkel said. But Frenkel has never seen prices turn as ugly, as quickly, as they have in the last few months.
“I just took in some sheet metal. They gave me $30 a ton. Well, they were giving over $150 a ton for that same sheet metal earlier this summer,” he observed. Even copper — Frenkel’s favorite metal — has nosedived, dropping from a summertime peak of about $3.80 a pound to around $1.10.
According to Bruce Savage, a spokesman for the Institute for Scrap Recycling Industries (ISRI), a Washington, D.C.-based trade group, the recent declines in scrap prices are without precedent. “It’s been an incredibly precipitous drop in the last four to six weeks alone. We’ve just never seen anything of this nature before,” Savage said.
Just four months ago, he noted, the scrap metal industry was booming, with superheated economies in the Far East fueling record high prices for everything from steel to aluminum to copper to brass. “Everybody assumed there would be some type of correction, but nothing as dramatic as what we’re seeing now,” Savage said.
And that has led to some unfamiliar troubles for scrap dealers.
In the protocols of the scrap business, Savage explained, exporters typically set prices with foreign buyers months in advance of delivery. Lately, the ISRI has received reports that some of those buyers are now reneging on the agreed upon prices.
“There have been a lot of shenanigans. Orders are being canceled or just not picked up by the clients. We’ve even heard reports of people inserting foreign materials into the orders to question quality,” Savage said.
In response to those tactics, some frustrated scrap dealers are agreeing to renegotiate prices with buyers. Meanwhile, on the domestic front, they have been cutting hours and making layoffs.
It’s anyone’s guess what the new conditions are going to mean for the industry long term.
On one hand, Savage noted, the six year boom in metal prices probably provided some companies with the necessary reserves to deal with the downtown. On the other hand, the boom also led to a wave of consolidations which could leave some big players burdened with unsustainable debt.
Minnesota scrap dealers: All dressed up and no place to go
Dusty Gibbs, co-owner of the north-Minneapolis based, Kirschbaum Krupp Metal Recycling, said the collapse of the scrap market came just as the company poured about $5 million into its facilities. The 100,000 square foot, turn-of-the-century steel foundry now features a brand new parking lot, expanded floor space, new scales and computers, and an environmentally engineered drainage pond designed to prevent contaminants from reaching the groundwater or the nearby Mississippi River.
“With the market the way it is, we’re all dressed up with no place to go,” Gibbs said dryly.
But while Kirschbaum Krupp managed to avoid layoffs through November, Gibbs said the company’s 65 permanent and temporary employees, accustomed to a five-day work week, have all had their hours cut back.
This summer, the company typically ran 450 retail customers per day. Now that number is halved and, with the lower prices, the total payouts are about a quarter what they were in the fat times.
“It is really frightening. And the most frightening part about this is that if you want to see the future of the U.S. economy, you look at the metals industry,” Gibbs said. “We’ve gone from absolute feast to absolute famine. We’re going to be lucky this month to sell any steel because nobody’s buying.”
For all his worries, Gibbs thinks competing businesses, particularly the ones that have assumed big debts to pay for consolidation or major capital improvements, face worse troubles.
“A huge number of scrap yards have a huge amount of debt right now. They have to service that debt, which means they have to make a profit. Right now, their margins can’t be large enough to make those payments,” Gibbs said. “I’m not saying everybody’s going down the tubes, but it’s going to be very tough year because there is so much leveraged money in our industry.”
In Minnesota, the UK-based European Metal Recyclers (ERM) has been the chief force for consolidation. Last year, EMR acquired four formerly independent scrap companies located within 60 miles of the Twin Cities, at an estimated cost of around $110 million. On top of that, EMR has been plowing significant amounts of cash into its Minnesota operations.
At the former American Iron’s riverfront scrap yard in north Minneapolis, for instance, EMR recently completed the construction of a new barge dock, performed extensive environmental cleanup of polluted soils at the site and is now erecting an enormous enclosed metal shredder. In October, EMR took the unusual step of issuing a press release to deny rumors that the company was facing bankruptcy and on the auction block.
“None of us really know what markets are going to do. But as far as our expectations, I think we’ve seen a bottoming out in the scrap market,” said Andy Staebell, CEO of the Northern Metal Recycling, EMR’s Minneapolis-based subsidiary.
Staebell said Northern Metal Recycling, which currently employs about 250 people, had recently “right-sized” its workforce. He did not have more specific numbers about layoffs.
A silver lining?
In cities across the country, some police departments have reported one benefit arising from the plummeting scrap prices: a corollary decline in incidents of metal theft, particularly the stripping of copper pipes from vacant houses and burglaries from construction sites. As MinnPost reported previously, that crime had become a virtual epidemic in some parts of the Twin Cities in recent years.
Local authorities say they have yet to note any encouraging trends. Sgt. Richard Jackson of the Minneapolis Police Department did not have hard numbers but said thefts did not seem to be declining in Minneapolis. In St. Paul, there were 10 reports of copper theft in the month of October, which was three more than in the same period last year.
Sgt. Dean Koehnen, who works in the code enforcement for the St. Paul Police Department, theorizes that any crime ameliorating effects from lower scrap prices are being offset by the ever expanding tide of vacant houses, a chief quarry of copper thieves.
The 2,100 buildings in St. Paul represent a threefold increase from two years ago, Koehnen said.
“At this point, we haven’t seen a drop in the number of break ins,” Koehnen added. “But maybe some of the criminals haven’t caught on yet that the prices have gone down.”
Mike Mosedale, who has written for City Pages and newspapers in Connecticut, Wisconsin and California, reports on the environment, Indian affairs and other topics.