It is generally useful to understand a speaker's point of view so that you can make some judgment as to his particular set of prejudices. In my case, I am Chairman of The Shredder Company, LLC, which manufactures scrap steel shredding equipment and which also operates an electric furnace steel foundry. I am Chairman of Newell Recycling Company of El Paso which operates a complete scrap processing facility with a shredder installation. This means that the companies with which I am involved, buy, process, and sell scrap steel, consume scrap in an electric furnace and manufacture equipment for scrap preparation. Sometimes, I do not know which side of the table I should be occupying, or which hat I should be wearing, but it does tend to keep me balanced.
At the present time, the scrap processing business and the steel business have enjoyed a few years of very robust market conditions and during this time we have seen a significant consolidation in the steel industry and also in the scrap processing industry.
I often tell people that I was very fortunate to have majored in economics as it was very good preparation for my present job. In the study of economics we spent about 50% of the time predicting the future, and the remaining 50% of the time, explaining why the previous predictions did not come true. In spite of that record, I will now make some fearless forecasts regarding trends and their consequences.
The world economy will be material short for the foreseeable future. The emergence of China and India as developing economic powers, fueled by their adoption of market economies is creating a huge demand by their consumers for more material goods such as automobiles, trucks buses, washers, dryers, appliances, telephones, electronic goods, houses and apartments, stores and office buildings, highways, bridges, rail roads and airports. There is an excellent new book, by Robyn Meredith, titled, “The Elephant and the Dragon” which explores the reasons why the Indian and the Chinese economies are developing in such robust but different ways. In addition to the Elephant (India) and the Dragon (China) economies, there are many other developing economies scattered around the world, each of whom is peopled with a population that wants to join the consumer society. In the USA with about 4% of the world’s population we have been consuming about 40% of the world’s non renewable resources. In order to understand the magnitude of this issue, please consider that according to the Economist Magazine, if all of the consumer spending of China, is added to all of the consumer spending of India, and if that number is compared to the total consumer spending of the United States, the total consumer spending of the United States is a number that is 4 times the combined China and Indian consumption. That is going to change and one of the manifestations of that change will be that the world economy will be material short for the foreseeable future.
The free market for scrap steel seems to be working quite well. There is a lot of truth to the economic saying, “there is no cure for high prices, like high prices.” This is the best way to allocate scarce resources. It is also said that in a free market, there is no such thing as shortages, there are only high prices. With high prices, there will be more production, and with high prices, there will be attempts to use less of the product and to use what is being consumed in a more efficient manner.
As the need for scrap steel increased over the past few years, the free market price being offered increased dramatically. Prices for a metric ton shredded steel scrap delivered to a typical steel mill went from the middle $150's to almost $400. I remember a few years ago, when at a similar meeting to this one, my friend Albert Cozzi predicted $200 per ton for factory bundles many of us thought he was crazy. The other day, I asked him if he had any more crazy predictions and he said that the market was about right at this point. This time I do not think that he is crazy. My point here is that the free market is a very good way to allocate scarce materials. It is always going up and down to adjust the supply and demand. At the moment, we have a little down turn in the market price, which again indicates that all is working correctly.
We are also now hearing that the producers of DRI and other types of scrap substitutes are making plans to invest in additional production. I have every confidence that the market will keep the price of steel scrap at a level that will promote good business.
Consolidation in the steel industry will be good for the health of the industry. During the past year, we have seen a huge consolidation in the steel industry which is intended to increase efficiencies in steel making and steel distribution. We have seen China add about 100 million tons of new steel capacity within a very short time. At the same time we have seen some obsolete steel making equipment taken out of production, partly as a result of the consolidation. Again, the free market is at work. It is my opinion that the steel industry will become more efficient through the consolidations.
Consolidation in the scrap processing industry will have some unintended consequences. We have also seen a movement to consolidate the scrap processing industry, with several world wide firms buying other world wide firms for many billions of dollars investment. We have also seen some steel makers such as Kieth Busse, of SDI acquiring more than a billion dollars worth of scrap processing assets. It is my opinion that there will not be as much efficiency gained by the consolidation in the scrap processing industry. Since the efficiency gains will not pay for the investments and the price to earnings ratios demanded by the equity markets, there will be an attempt for larger margins by the consolidated companies. These larger margins will encourage new investments in smaller shredding plants. We see this trend already at work. In several areas where major competitors have been consolidated, the margin available to process scrap increased. This has resulted in a number of processors taking a “neighborhood” concept for their scrap gathering efforts. While the very large shredder investments need 30,000 or 50,000 tons, or even more, per month to process economically, a “neighborhood” concept shredding plant, with much lower investment, can make money with 2,000 to 5,000 tons to process. The entry fee to enter the scrap processing business is not as high as the entry fee for entering the steel manufacturing business. Therefore when processing margins seem to be available, I think that new smaller plants will be established.
During the past year, The Shredder Company has supplied 3 of the very large shredders and 3 of the smaller shredders, sometimes to the same market area.
The largest shredder that we have supplied this year was to Fengli Group in Xuzhou, China. This is believed to be the largest, highest producing shredding plant in the world. It features more than 400,000 square meters (about 100 acres) of 250 mm thick (10 inch) concrete, 17 weigh bridges of 100 tons capacity each to handle the incoming and outgoing truck traffic, 25 hydraulic cranes, 3 very large bridge cranes and a 10,000 HP 124 SXS shredding plant capable of processing more than 1,000,000 tons of shredded scrap per year. The plant is also scheduled to process about 500,000 tons of heavy melting scrap per year. The total investment for this plant will be the equivalent of $100,000,000 dollars.
Mr. Xiang is the project manager who will install 4 plants of this size, one per year over the next 3 years.
The plant features a split downstream before the magnetic separation and then a further split to 4 picking conveyors before the final stacking conveyor.
This plant has an extensive collection system for the non ferrous metals which will be processed off line from the shredder plant.
I am often asked where they will get enough scrap for the 1,000,000 tons per year. What I can tell you is that they were receiving up to 3000 to 4000 tons per day of this type of scrap during my visit there last month.
The smallest shredder that we supplied this year is our 60 SXS shredder with 1500 HP, with a total investment of about $4,000,000, which is producing about 2,000 to 3,000 tons per month of shredded steel scrap. This plant is located about 60 miles from one of the largest shredder operations in the USA. Under our free market system, consolidations tend to create wider margins because of lower levels of competition and wider margins tend to encourage new companies to enter into the economic competition. Always there is this pressure for balance.
The market will continue to be relentless in the drive to force more efficiency into the economy. Steel makers need to make more steel for lower costs. Scrap processors need to add more value to the scrap provided.
Now with that as background, let us discuss trends that are being seen in scrap processing and let us discus the implications for producers and consumers of shredded steel scrap.
It is believed that steel mills need to continue to learn how to utilize scrap more efficiently so that there is more value added with each ton of steel scrap utilized.
Steel scrap producers need to learn how to collect, process and deliver prepared steel scrap to the steel mill more efficiently, again, so that more value is added. There needs to be an end to the antagonistic relationship between scrap steel processors and steel scrap consumers. Processors and consumers of steel scrap are all in the same overall business and we can create a synergistic relationship where all sides can benefit.
The path followed by a typical ton of scrap from the point of origin to the electric furnace contains many steps. Some of those steps can be eliminated, and some of them can be significantly reduced. It is also possible to process the steel scrap in a way that adds more value to each ton produced.
Steel scrap normally begins its journey to the electric furnace from a point such as an automobile repair shop, or a wrecking yard (where all usable parts are removed), or a demolition site (where steel beams and misc. steel items such as door frames, etc. are recovered), an appliance repair shop, a waste disposal site, or a plant where scrap is produced when new products are manufactured or one of any number of other points of origin.
From the point of origin, the scrap steel must be loaded onto a truck and carried to a scrap steel processing facility. It is generally then unloaded into a stock pile waiting for the processing equipment. At some time later, the scrap steel is picked up and moved to a shredder or to a large hydraulic shear, or other scrap steel processing device. The steel scrap is then shredded, sheared or torched and this involves costs. The product is generally then put back into a stock pile to await shipment to the consumer. The scrap steel product is then loaded into a rail car, or a truck and is transported to the steel mill, or foundry.
When it arrives at the consumer, it is generally unloaded into a stock pile. Later it is picked up from the stock pile and moved to the charging bucket, or other device to feed the electric furnace. The different types or grades of scrap steel from the stock pile areas must be put into the charging bucket in the correct proportions (blending) to ensure the correct analysis and the lowest cost for the scrap steel, when the steel is melted. The steel scrap is then loaded into a furnace and is melted. Normally, in an electric furnace, the charging procedure must take place 2 or 3 times in order to make a full heat. This process loses time and energy as the top must be removed from the furnace for each charging process.
Some scrap steel is better to melt than other grades of scrap. The free market seems to indicate that shredded steel scrap is one of the most desirable grades of steel making raw materials in that it is generally priced at a premium over #1 Heavy Melting Scrap grades. I tend to believe that people are sincere when they vote with their money.
The melter must carefully check the analysis of the molten steel and then must make adjustments to the chemistry and make sure that the heat leaves the furnace at the correct temperature. Sometimes the molten steel is put into another holding furnace for refining and sometimes the molten steel is taken to the continuous caster. In some of these processes, an especially prepared steel scrap called cooling scrap is then added to the heat.
In any event, there are a huge number of steps in this process. When I look at all of the steps that this scrap follows, I am amazed that we are able to produce a ton of prepared steel scrap or a ton of new steel product for as low of a price as we do. I am convinced that during the next few years, we will all see a lot of pressure to reduce the number of steps, to lower costs and to increase the value of the finished scrap steel product.
There are a number of things that are presently being utilized in order to make some movement in the direction of increased efficiency, lower costs and higher value added to the product.
More Types of Scrap Steel Are Being Shredded
More types of scrap steel are being shredded each year and more of that scrap is being shredded in larger, tougher and smarter shredders, such as the new generation of very large shredders that utilize 6000 to 10,000 HP for the main electric motor, which have lower costs per ton for processing. The new generation of shredding equipment is not only tougher but it is much smarter than the older equipment.
Although we created this SMART and STRONG photo for one of our ad’s the truth of it can be applied to most of the new shredding plants that are being installed around the world.
We call the operating software for our shredders, the Smart Shredding System, and all manufacturers of shredding equipment offer their own version of this type of equipment. The computer software provides “hands off” shredding which is better than any human operator. There are many decisions per second and they are always the right decisions. The management reports that are always available provide information that allows for constant improvement.
Smart Shredding System Monitor
This is the screen that the operator monitors. In this photo the shredder motor is operating at 78% of the thermal capacity of the motor and the plant is producing about 350 tons per hour. There are more than 20 back up screens in the program that allow the management to monitor bearing temperatures, winding temperatures, trends in amperage use, feed roller speed, causes for downtime, life of every replaceable part inside of the shredder and lots of other information that management will find interesting.
One of the biggest improvements to shredding has been stronger and smarter feeding systems that utilize the available horsepower much more efficiently. The feed rollers are able to move at very high speeds when the shredder is not using all of its potential so even less dense material can be fed to the shredder at a proper feed rate. The larger upper roller smoothes out the incoming feed material so that it is able to be fed at a constant rate into the shredder itself.
Super Double Feed Roller System
The attempt is to create stronger and smarter shredding processes, not only in the shredder but in what we call the down stream separation systems. In order to produce cleaner shredded scrap, many new plants have installed split down stream separation systems, such as this one installed at Adams Steel, in Anaheim, California. This down stream features a double line of very large drum magnetic separators, dual picking conveyors and very extensive non ferrous metal recovery and separation equipment.
Adams Steel Down Stream System
Higher percentages of the total scrap supply will be shredded in the future. Shredding is much more efficient than previous methods of scrap processing such as torching, shearing or baling. There are more types of specialty scrap steel products being produced, such as low copper residual scrap, cooling scrap, degassing scrap, and special grades of heavy steel scrap.
The introduction of shredded steel scrap into electric furnaces is very popular all around the world and there are a number of good reasons why that is true. Please consider some of the reasons why more scrap steel is being shredded each year as compared to alternative methods of scrap steel preparation.
Advantages of a Shredder versus a Hydraulic Shear
- Hydraulic shears process material very slowly compared to a shredder.
- The unprepared material for a shear costs about the same as the unprepared material for a shredder.
- The shrinkage incurred, if it were possible to shred this material, would be much lower than that incurred when shredding normal scrap. (In actual practice several tests indicate that the shrinkage will be less than 10 %.)
- Some non-ferrous material will be recovered and the value of the non-ferrous material will probably at least equal the cost of the shrinkage. (In actual practice we later found that almost 1 % of the material shredded was non-ferrous metal and that it has a high percentage of copper bearing material such as brass valves in it.)
- The market is normally at least $10.00 per ton more for shredded material than it is for #1 grades of sheared scrap and $20.00 to $30.00 per ton more than it is for #2 grades of sheared scrap..
- Steel mills have been upgrading the type of scrap required because of tighter specifications for their finished steel products, because of the desire to melt faster and to spend less time refining the steel after it has been melted.
We believe that during 2007, around 25,000,000 to 30,000,000 tons, of shredded steel scrap, were produced in North America alone. This represents something like 30% or 35% of all of the scrap steel used in North America. It is interesting to note that in Japan, for instance, only 11% of the total scrap used will be shredded steel scrap. In other parts of Asia the percentage of shredded steel scrap will be even lower. In Europe, is seems that about 20% of the total scrap utilized will be shredded steel scrap.
The experience of North American steel scrap utilization indicates that a much higher percentage of the world's total scrap supply, in the future, will be shredded as compared to sheared, or baled. We believe that the use of shredded steel scrap in electric furnaces adds more value for less cost than does the use of any alternative material.
Shredded steel scrap is recognized as a world commodity and is traded in all parts of the world. The price for shredded steel scrap is listed in all of the publications that purport to list the price of raw materials for steel making and shredded steel scrap is almost always quoted at a premium over #1 Heavy Melting scrap steel.
The electric furnace steel maker has been in a constant search to find methods to manufacture better new steel products at an ever decreasing price per ton. The melter knows that if a higher quality scrap is introduced into the furnace, he can melt more quickly and produce a steel product with low residuals.
Shredded steel scrap has many advantages over other types of scrap particularly when used in an electric furnace because:
- There is a high yield of hot metal as a ratio of input shredded scrap.
- The chemistry of the hot metal is more uniform heat after heat.
- The good density means there are less back charges in order to reach furnace capacity.
- There is less electrode breakage.
- There is longer furnace lining life.
- There is less sulfur in the hot metal.
- There is less phosphorus in the hot metal.
- There is less electric consumption per ton of hot metal.
- There is less air pollution.
- There are less hot spots in the furnace.
- When shredded scrap is mixed with other feed stock the shredded scrap fills the voids providing a more dense mix.
- Shredded scrap lends itself to better material handling techniques.
In order for EAF steel makers to become more efficient, more material must be shredded and used. The cost of shredding will be reduced through the use of larger, tougher shredders. There are a number of other things that can and must be done at the same time.
More scrap will be sold to from the processor to the consumer which has been blended for charging purposes. A number of forward looking scrap processors are also beginning to sell blended steel scrap products to consumers. The idea of blending different grades of scrap steel to provide the lowest cost raw material that will satisfy the melter's requirements has always been done, but it is normally being done at the steel mill. The melter gets exactly the blend that is required for the product that will be produced. He does not pay for better grades of scrap than required and he does not have to spend a lot of time diluting or refining the molten steel.
The new idea is that it is less expensive to do the blending at the scrap processing facility so that when the material arrives at the steel mill, it can be used directly from the rail car, or the delivering truck, into the scrap steel charging bucket. The scrap processor may even guarantee the chemical composition by offering to pay the cost of any lost melt at the furnace. This delivery of the correct blend of scrap to the furnace, eliminates several of the steps that are normally involved in the process. The savings can be divided between the scrap processor and the steel mill and everyone wins.
A greater effort will be made to reduce freight costs. As freight expenses are a large part of the cost of the steel scrap as it is delivered to the furnace, some progressive scrap processors are attempting to find ways to lower those freight costs. This can be done by increasing the density of the produced scrap steel. This increases the amount of material that can be carried with each rail car, or truck.
It is also possible to make arrangements with steel mills to accept material delivered in dump trucks on a 24 hour basis so that the trucks can deliver material in times of less traffic and can dump the material in the steel maker's plant right at the spot where it is needed. It is also possible to negotiate with the rail road companies so that unit trains are used to move large amounts of scrap at one time. For example, if 10 rail cars can be covered with the same bill of lading, the 10 rail cars can be picked up and delivered at the same time with the same rail crew, there are significant savings. It cost about the same to deliver the 10 rail cars as it would with only one rail car. Again, the savings can be divided, in this case between the rail road company and the scrap processor.
There will be increased production of Low Copper Residual Scrap. It is possible with these new designed machines, to produce shredded steel scrap with lower copper residuals, which adds value. This is done by selecting the materials that are to be shredded, or by size separating the shredded steel scrap so that the lower copper residual materials can be sold separately. For more information on this subject, please see the paper that we have presented on production of low copper residual scrap, which can be accessed on our web site. This material normally sells for a premium of $7 to $20 per ton over the price for normal shredded steel scrap.
There will be an increase in the production of Cooling Scrap. Although in the United States there is only a small cooling scrap market at this time, it is also a premium priced market. Cooling scrap must have density in the range of 2.0 to 3.0 specific gravity and it must be sized so that it will flow through pipes, hoppers and other handling systems. Cooling scrap is used in the steel making process in plants that have continuous casting machines and plants that use Vacuum Degassing systems. Cooling scrap is introduced into molten steel to cool it to the proper temperature for use in the continuous casting machine. We believe that the modern shredder has a big potential to produce cooling scrap because of the modern shredder's ability to process heavy scrap into a very dense product.
There will be further improvements in the separation of non-ferrous metals from the waste material. New separation systems allow shredding operations to make a better separation of non ferrous metals from the waste stream that results when steel scrap is shredded. New separation systems allow a much better recovery of non ferrous metals because of tremendously improved recovery of very small particles, typically referred to as “fines” and because of better techniques for recovery of small copper wires, which in the past were not possible to recover. There are also possibilities for better identification of the types of metals available and better methods of separating those metals from each other.
Separation and recovery of plastics and other non metals have a real possibility of adding to the value created when shredding plants are operated.
Anything that increases the value added when processing scrap adds to the profit.
We believe that shredded steel scrap will be continuously fed into electric furnaces in much the same way that directly reduced iron ore pellets are being fed into the furnace through a fifth hole in the roof of the furnace.
There are a number of advantages that would accrue to the operator who is able to solve the handling problems:
- The tap to tap time for the furnace should be lowered because of less time spent with the roof off of the furnace.
- The total energy used to melt each ton of material should be lower because of the conservation of heat from leaving the roof in place longer.
- It should be possible to preheat the scrap with the exhaust gasses, which would further reduce the amount of energy required.
There is really only one problem that must be overcome in order to make this a successful operation:
- The shredded steel scrap must be uniform enough in size so that it flows smoothly out of hoppers. This usually means that it must be dense enough to make the pieces uniform. We believe that this is achievable at about 120 pounds per cubic foot (1.85 tons per cubic meter).
- When the scrap is properly sized, then all of the lessons learned through the use of DRI can be applied to this operation.
Changing economic times almost always brings positive changes to operating efficiencies in the affected industries. I believe that the scrap processing and the steel making industries are really one industry. I believe that the continuing pressure on our combined industry will result in our learning to be more efficient by reducing costs and by adding value. We will shred more of the scrap steel used in steel making. We will shred it more efficiently in larger, tougher, smarter machines. We will create more types of shredded steel scrap that will have higher values, such as low copper residual scrap, cooling scrap, higher density special grades, and etc.
All of us will learn to eliminate steps in the process, reducing handling and freight costs. We will learn how to blend a more value added package of scrap for use in the EAF. We will learn how to use steel scrap in our furnaces in a more efficient manner.
Reducing costs and adding value will lessen the effect of future economic challenges and problems and will prepare us for survival and prosperity.
Speaking as a part of the Newell family, starting with my father, Alton Newell, who invented the practical steel scrap shredder about 60 years ago and continuing through my brother, John Newell and sister, Sharon Newell Shirley, her husband, Chip Shirley and all of our children and particularly my son Scott Newell III, we are proud to have been involved in, and associated with, the development of shredded steel scrap, shredders, shredding techniques, non ferrous metal recovery and processing and steel scrap processing developments over the years and we look forward to continuing to grow in this area far into the future.
For the best interest of all of us, I hope that the predictions of significant advancement in productivity and profitability are true. If not, I am afraid that I will be invited back next year, same time, to explain what went wrong with my “fearless forecasts”.
Thank you for having invited me to speak with you this year.