Futures & Commodities

Metals and Plastics Markets Are Getting Scrappy

David Russell,|Producer

First came copper, then oil, wheat, fertilizer and coal. Now the surging global economy is clamoring for yet another commodity: rusting cars, refrigerators and washing machines.

Worker in an Alcoa plant.

U.S. scrap yards are turning into boomtowns and attracting billions in capital as steel companies and overseas buyers find treasure in American trash.

Exports of used materials like steel, rubber and plastics climbed 12 percent to 38.2 million metric tons in 2007, according to the Institute of Scrap Recycling Industries. The total has climbed each of the last seven years and is on pace for a new high again in 2008, said ISRI spokesman Bruce Savage.

“Every indication is it will continue to grow — there is more and more recycling,” he said.

The price of heavy melting steel surged 43 percent in April at a regular monthly auction for automakers scraps, and another 37 percent this month. The steel now costs $690 a ton, more than double from a year ago. Since 2002, the price has risen almost 600 percent, according to ISRI.

Higher prices have been a boon to once-struggling North American companies like U.S. Steel , whose shares stand near an all-time high after reporting record sales last quarter. Others, like Nucor and Steel Dynamics , have turned to the scrap market as a major source of raw materials.

Charlotte, N.C.-based Nucor, for instance, has spent more than $1.4 billion so far this year buying up scrap-metal assets.

“Input costs are expensive for steel manufacturers, so companies are trying to get vertically integrated,” said Fifth Third portfolio manager Jon Fisher, who’s been buying shares of U.S. Steel and Steel Dynamics to play the bull market for metals. “Globally demand is greater than supply.”

One beneficiary of the steel boom has been Al-jon, a family-owned company in Ottumwa, Iowa. Scrap-yard owners use its crushing and baling machines to press vehicles into massive slabs for easy export.

“We’re backlogged and loving every minute of it,” Chief Executive Kendig Kneen said, adding he recently increased his workforce by 65 percent to 165 employees.

ISRI says the biggest demand for scrap metals is coming from India and China, where millions of people are buying their first cars and appliances as standards of living improve. In 2007, 152 countries purchased U.S. scrap material, up from 142 countries a year earlier.

Foreigners are also showing more interest in the U.S. scrap market. ISRI said its last conference drew significantly more interest than usual, including a strong showing from oversees attendees.