Functional Components of the Ferrous Scrap Industry in a Selected Portion of the Southeastern U. S.

FUNCTIONAL COMPONENTS OF THE FERROUS SCRAP INDUSTRY IN A SELECTED PORTION OF THE SOUTHEASTERN U. S. Paul Frederick Rizza* In recent years, new electric steel mills have been built and total electric steel mill production has increased substantially in the southeastern United States. For several years, the Southeast has been an excess producer of ferrous scrap—the basic raw material used in electric steel mill production. (1) Ferrous scrap, particularly scrap steel, can be used in varying quantities in all types of steel-making furnaces: the open-hearth, electric, basic oxygen (BOF), and Bessemer. Only electricarc steel-making furnaces, however, are currently used in the area considered by this paper, and they are charged almost exclusively with steel scrap. Electric furnace steel producers depend almost exclusively on the scrap industry for their basic raw material. Purchased scrap consumption for electric mills ranges from 75 to 100 percent of the total scrap consumed, depending on whether or not mill-revert scrap is considered as a separate source. Cast iron is not purchased or consumed by steel mills. For the most part, it is bought and used by large foundries located in the Birmingham-Anniston, Alabama, area. STUDY AREA. This paper focuses on the functional components of the ferrous scrap industry currently providing essential raw materials for five electric steel mills located in three Southeastern states. These five steel producers are located in a relatively compact geographical area within Georgia, South Carolina, and North Carolina. Since all five mills are electric, they are dependent on ferrous scrap as a raw material. The outer boundary of their collective raw materials supply area thus serves as the study area boundary (Figure 1). (2) The study area encompasses a region that contains all the functional components found in the American scrap industry today. Each state within the study area is an excess producer of ferrous scrap and ships its surplus to domestic deficit regions and abroad. PURPOSE. The primary purpose of this paper is to accurately describe the functional hierarchy of the ferrous scrap industry. Although the steel industry has been the focus of research by many scholars, the ferrous scrap industry has been largely ignored. Little has been written concerning the ferrous scrap industry's functional and spatial organization or its raw material flow patterns. This complex industry funnels small •Dr. Rizza is professor and chairman of the Department of Geography at Slippery Rock State College. This paper was accepted for publication in June 1974. Vol. XIV, No. 2 97 quantities of areally dispersed ferrous wastes into capital intensive processing facilities which, in turn, supply the electric steel mills. Carlson and Gow recognized the lack of attention given to the ferrous scrap industry in 1936. Little has been said about the scrap iron and steel industry. However, it supplies approximately one half of the raw materials of the steel industry. It thus ranks with pig iron as an immediate source of our steel products .... The scrap iron and steel industry is a fundamental part of our industrial structure . (3) In 1955, Pounds also recognized the importance of the industry and emphasized technical, economic, and conservation advantages that could FERROUS SCRAP CONSUMERS LOCATED IN THE STUDY AREA, 1970 4* 1 ------ï._....y I f \ CHARLOTTE. V * _________ · % //*·"(Florid« St··! Company) \ \ DARLINGTON*^ I X"? (Eaatern Carolina Steel \ \ _ Company) COLUMBIA· (Owen« Electric ATLANTA¦ · M\ (Atlantic : Steel Company) Steel Company]^.(Georgetown Steel Company) QEOR6ET0WN< WILMINGTON \ I S I ~yApor" • \ V y^»¡Electric Steel Mills \ \ ) ?*avBHiHStudy Area Boundary I SAVANNAH t_ * CHARLESTON Figure 1 be derived from increased use of ferrous scrap by steel producers. (4) Today, ferrous scrap recycling remains economically significant to the steel industry, and indeed, to the entire economy. The importance of Southeastern Geographer ferrous scrap as the basic raw material input for electric steel-making, and the paucity of studies pertaining to it, suggests the need for careful study of this fascinating and complex industry. FUNCTIONAL COMPONENTS OF THE FERROUS SCRAP INDUSTRY . Once generated, scrap must enter the recycling process, become a nuisance to society in the form of solid waste, or be lost forever in landfill projects. The recycling of scrap is limited by critical economic factors. The cost of buying, transporting, and processing scrap, as well as current market prices for the grade produced, determine which scrap will be recycled. The purpose here is to accurately describe the functional components of the scrap recycling process. The ferrous scrap industry has a distinct structure of functional components that work in concert. Collectors, dealers, dealer-processors, and brokers are the major components of the ferrous scrap industry; yet these functions often overlap. Ferrous scrap does not always progress through a logical sequence from generation to consumption. In many cases, alternative flows through functional components are evident and frequently some components are bypassed. These alternative flow patterns and overlaps of functions create a complex picture of scrap movement within the industry. Collection. Ferrous scrap collection is performed by every element in the industry. Collection, however, varies in importance from a peripheral to a primary function for each industry component. Many brokers, processors, and dealers collect and haul sizeable quantities of scrap aggregated by industries and businesses of all sorts. The professional collectors or scrap peddlers are primarily concerned with obsolescent scrap. These peddlers are small entrepreneurs who gather mixed loads of waste materials and truck them to local dealers or processors. (5) They aggregate and haul small amounts of spatially dispersed metallic wastes from dumps, garages, construction and demolition sites, small metal working shops, farms, or any other available source—provided it is economically feasible to do so. In recent years, the full-time peddler has been declining in number and importance. Principal reasons cited for this decline include: 1) fluctuating and frequently depressed market prices for ferrous scrap, 2) increased costs of operating trucks and a shortage of dependable labor, 3) a need for more expensive and efficient equipment to lower handling costs, and 4) more remunerative and dependable jobs outside the scrap industry. (6) Some former peddlers still function as collectors on a part-time basis. These are normally one man operations where weekends or spare hours are spent collecting mixed loads for local dealers. A pickup truck is usually the major piece of capital equipment. In rural areas, farmers often serve as part-time collectors during their slack seasons. As Charles Lipset notes, Vol. XIV, No. 2 99 Farms provide a steady flow of scrap, chiefly to small town yards. It is not unusual for a farmer to take a load of scrap to the local dealer in the spring when he goes to town for his seed and fertilizer, and again in the fall when he puts in his coal for the winter. (7) In general, part-time collectors appear to be more numerous than fulltime collectors. The "in and out" collector phenomenon was often described during field interviews. Many scrap dealers and processors state that when demand for scrap is strong, there is a corresponding increase in the number of peddlers. When prices drop there is a decrease in the number of peddlers. A few capital intensive collectors serve large processors in metropolitan areas. They operate a small fleet of trucks, sometimes a portable car crusher, and occasionally a mobile crane. In some cases, processors help finance the equipment necessary for economically efficient collection in order to insure a steady supply of scrap for their processing facility. However, this is not a common or widespread practice. Buying, Selling, and Processing. Buying, selling, and processing functions are performed primarily by dealers and processors in the ferrous scrap industry. However, the functions of both dealers and processors are performed at the same location: a scrap yard. The dealer may buy scrap across his scales from peddlers, from industry, or from individuals. In each case, his scrap yard serves as a point of aggregation for purchased scrap. After scrap enters the yard, it is normally segregated and classified according to type of material, processed, and reloaded for shipment to consumers. It is the degree of processing within a yard that differentiates the scrap dealer from the processor. All scrap processors interviewed are dealers in the sense that they purchased scrap, but not all dealers are processors. Table 1 presents a list of the primary functions identified by scrap yard spokesmen within the study area. The difficulty in separating the dealer and processor functions is obvious. Of 105 yard operators interviewed , only three claimed to be dealers solely, and only two were solely processors. On the other hand, 92 yards performed multiple functions, while identifying either dealership or processing functions as foremost. The dealership function was dominant in 52 yards, while processing was dominant in 40 yards. It is important to note that differences in functions do exist, although both functions are normally conducted at the same location. Once scrap enters a yard it is segregated, classified, and processed. The processing function is, in effect, a form of manufacturing. (8) Ferrous materials are shredded, cut, and baled to meet the specifications of consumers. A variety of expensive and sophisticated equipment is used for processing ferrous wastes. Cranes, magnets, alligator and guillotine 100Southeastern Geographer shears, shredders, baling presses, and incinerators are typical examples of equipment used for preparing scrap. The use of such equipment makes the processing function the most capital-intensive segment of the TABLE 1 PRIMARY FUNCTION OF FERROUS SCRAP YARDS IN GEORGIA AND THE CAROLINAS, 1970 Primary FunctionNumber of Yards Dealer3 Processor2 Dealer-processor49 Processor-dealer32 Dealer-processor plus a third function3 Processor-dealer plus a third function8 Other, with dealer or processor as a secondary function8 Total105 Source: compiled by the author from field interviews, 1970-1971. industry. In 1967, the approximate cost of equipping a small scrap yard in a competitive area was $250,000. (9) Dealer-processors are normally located in urban areas. Figure 2 indicates the distribution of scrap yards within the study area. Most yards are adjacent to sizeable population concentrations which generate sufficient scrap to make the processing function economically viable. Proximity to raw scrap sources is an obvious first consideration for dealer-processors. Large metropolitan areas frequently support several processing yards, while smaller urban centers may support only one or two. The Piedmont, more heavily industrialized than the Coastal Plains or the Appalachian segment of the study area, supports a larger number of processing operations than do the other two physiographic sectors. Dealer-processors serve as foci for the aggregation and processing of ferrous scrap. Each yard serves as a node for an area from which scrap is collected and funneled into the processing segment of the industry . The approximate area served by each yard, its raw material supply area, is presented in Figure 3. In towns containing two or more dealer-processors, the supply areas represent the averaged draw-areas of the operators involved. In general, the larger cities have a larger raw material supply area and a greater number of scrap yards. The more heavily industrialized Piedmont has the greatest concentration of scrap yards and is adequately serviced by several dealer-processors. Brokerage Activities. The brokerage function is performed primarily by Vol. XIV, No. 2 101 brokers and sub-brokers. Both receive a brokerage fee for services, usually payable on a tonnage basis. A major difference between the two is in the quantity of scrap purchased and the arcai extent of their operations . A broker purchases scrap from several yards scattered through SCRAP YARD LOCATIONS IN THE STUDY AREA, 1970 Elii^belh City·, ^r «·—·„!»„·°......R"k- """i/Tí ^Afn «-ko.»· »s......«"·"*"""' ,ßG??1_/ il \ ^..—·—*-.,„„, «L....... ;w„/ I AW _„ , V D.H.nflton«jN.· W.lmmgton \f*™·.ß..».«,.,· .^#q.....ood ^ Ft0f.nc.# .Merion^^ ft ·¦¦ I oufce ISIS Directory (1970) end field interviewa¦¦M Study Area Boundary 501OO Figure 2 a large area for a major consumer, such as a steel mill. On the other hand, a sub-broker purchases scrap in a smaller area and from fewer yards. The sub-broker rarely sells directly to the consumer but rather to another broker—hence the term "sub-broker." Figure 4 indicates the distribution of brokers and sub-brokers operating in the study area during 1970. Brokers perform many valuable services for both dealer-processors and consumers (mills and foundries). These include: 1) financing dealerprocessors , 2) advising dealer-processors on market conditions in reference to the type of scrap demanded and when to sell, 3) informing dealer-processors about innovative processing techniques and new equip- 102 Southeastern Geographer ment, 4) locating favorable markets for dealers' scrap and finding markets for new products, and 5) handling the shipment of ferrous scrap from the yard to the consumer. (10) The financing function performed by brokers is the single most important service. When the broker purchases scrap from a dealer he RAW MATERIAL SUPPLY AREAS FOR SCRAP YARDS IN THE STUDY AREA, 1970 O Soufc«: Compiled from DaId int*rvi·«··, 1970-71 ? ÌOt^°Each circle repreaanta the avarag· area aupplylng raw matártela to a locetion having one or more ecrap-yarda.«¦¦ Study Aree Boundary Figure 3 normally pays 75 to 90 percent of the scrap's value upon shipment from the dealer's yard. When the consumer accepts shipment and verifies weights (often several days after shipping) the broker pays the remaining price of the scrap. This financing service also extends to the consumer. Mills traditionally pay the broker 15 to 60 days after the scrap shipment has been accepted. In essence, the broker provides the money that allows scrap to flow from point of aggregation and processing to the point of consumption. Brokers appear to have the organizational network and connections essential to keep themselves informed on happenings throughout the Vol. XIV, No. 2 103 scrap industry. Unlike many dealer-processors, they maintain an awareness of scrap needs and availability over a broad area. Ideally, brokers can satisfy the consumer's scrap requirements in terms of quantity and grade at the lowest cost. Brokerage services performed for ferrous scrap consumers include: 1) short-term financing, 2) advice on market conditions, 3) mill inventory FERROUS SCRAP BROKERS AND SUB-BROKERS OPERATING IN THE STUDY AREA ,1970 _^ Brokers f Sub-brokers¦ ¦¦ih Study Area Boundary Source ISIS Directory and field interviews, 1970-71 PFR/1971 Figure 4 surveys, 4) provision of metallurgical experts to help solve problems at mills and foundries, 5) funneling large tonnages of scrap from areally dispersed processors to a central consuming point, and 6) handling freight claims. Brokers occasionally provide specialists for consumers in 104Southeastern Geographer an effort to solve their scrap-related problems. If a mill or foundry has difficulty utilizing certain grades of ferrous scrap in its furnace, a metallurgist may be provided by the broker to help remedy the problem. Brokers also have hired surveyors to determine tonnages of scrap stockpiled at mills and foundries. When a consumer rejects a scrap shipment because of excess dirt or improper grading, the broker has the responsibility of returning the shipment or making a proper adjustment. The brokerage function is in large part performed for the convenience of the consumer. Brokers know the consumer's needs and maintain close contacts with dealer-processors. When the consumer needs scrap, he can place an order with a broker rather than deal directly with several dealer-processors or sub-brokers. Thus, the problem of aggregating large tonnages of scrap for the mill from a number of dispersed scrap yards becomes a major function of the broker. For this service the broker receives a fee, usually a dollar per ton. (11) The brokerage fee is paid by the processor, not by the consumer. Thus, the brokerage fee is subtracted from the mill price and the dealer-processor actually receives fifty cents to a dollar per ton less than the consumer pays to the broker. Approximately one dozen sub-brokers are active within the study area. They may act as an exclusive buyer for a medium size foundry or purchase scrap from satellite yards within a limited area. In many cases, sub-brokers must sell a significant portion of their scrap to other brokers who have exclusive agreements with large consumers. In this situation a yard selling through a sub-broker, who in turn sells through a broker, pays a double brokerage fee. In some cases, the sub-broker will handle a feeder yard's scrap at no cost to that yard. This is done only when the sub-broker wants to maintain the flow of scrap from smaller yards to his own yard. The dual service function of the broker has been questioned by many dealer-processors. They often feel that the broker's first loyalty is to the consumer, and little serious attention is given to their problems. In some cases, larger dealers have been able to sell directly to mills and foundries, thus bypassing the brokerage function. Small and intermediate size yards, however, rarely can deal directly with consumers and need the broker—especially for the financing function. Scrap Movement Within the Industry Hierarchy. The normal movement of ferrous scrap through the industrial organization is from source of generation to the collector, then sequentially to the dealer-processor, the broker, and finally to the consumer. As pointed out earlier, there are several alternative flows as well as functional overlaps that tend to complicate the normal pattern. In all cases, however, the functional components of the ferrous scrap industry work in concert to meet the needs of electric steel mills and exhibit a remarkable flexibility. Vol. XIV, No. 2 105 CONCLUSIONS. The study area traditionally has been one of excess scrap generation and low scrap prices. It seems reasonable to assume that these were important considerations in the decisions to establish new electric steel mills there between 1968 and 1970. During this period, two new electric mills were built: one at Darlington and another at Georgetown, South Carolina. Both mills were operating in 1970, and no shortage of scrap had resulted. In fact, the study area remains an excess producer of ferrous scrap. The ability of the study area to meet current demand while shipping its excess production to other regions and abroad appears to make it attractive for new mills or for expansion in the capacity of existing facilities. The presence of the ferrous scrap industry, with its distinct functional and spatial components working in concert to purchase, process , and supply ferrous scrap to consumers (particularly electric steel mills), encourages this expansion. Collecting, purchasing, processing, transporting, and brokering of ferrous scrap are essential functions performed within the present industrial structure. It is this structured hierarchy and the productive flexibility of this dynamic and often ignored industry that not only permit, but encourage the expansion of electric steel-making in the study area. In short, the study area appears to have a viable scrap industry capable of supporting greater electric steel producing capacity; further expansion seems likely. Finally, the study area appears to be the core of an extended "region" of scrap-dependent electric steel mill production. Based on 1970 information, it appears that electric mills were the only steel producing facilities in Virginia, Tennessee, North Carolina, South Carolina, Georgia, and Florida. These scrap-oriented mills constitute a unique areal component within the United States steel industry. They may well owe their existence to the scrap industry which provides the essential raw materials. ( 1 ) Danielson, V. ?., O'Neil, J. F., and Ahrenholz, Iron and Steel Scrap in the Southeast , U. S. Bureau of Mines Information Circular 8329, Government Printing Office, Washington, D. C, 1967, p. 33. ( 2 ) The boundary was determined through interviews with steel mill spokesmen at each mill who provided a list of supply points where scrap shipments normally originated during 1970. ( 3 ) Carlson, Albert S., and Gow, Charles B., "Scrap Iron and Steel Industry," Economic Geography, Vol. 12, 1936, p. 175. ( 4 ) Pounds, Norman J. G., "World Production and Use of Steel Scrap," Economic Geography, Vol. 35, 1955, pp. 247-258. ( 5 ) Barringer, Edwin C, The Story of Scrap, Institute of Scrap Iron and Steel, Inc., Washington, D. C, 1954, p. 27. ( 6 ) These are the reasons most often stated by scrap yard spokesmen during interviews . Information for this and subsequent sections were derived from interviews with operators of 105 scrap yards located in the study area, 1970-71. To the' author's knowledge, this included all active scrap yards in the study area. ( 7 ) Lipset, Charles H., Industrial Wastes and Satoape, The Atlas Publishing Co., Inc., New York, 1963, p. 156. ( 8 ) "Scrap is Not Junk," The Enquirer (Cincinnati), June 22, 1970, p. 6. ( 9 ) Bennett, H., Iron and Steel Scrap in the Inter-Mountain and Northwestern Plains States, U. S. Bureau of Mines Information Circular 8344, Government Printing Office, Washington, D. C, 1967, p. 26. (10)This list of activities was obtained from field interviews conducted with brokers in the study area, 1970-71. (11)The "normal", fee is considered to be $1.00/ton by most people in the industry although sub-brokers often arrange deals for only $.50/ton. ...