The Price of Scrap

When I worked fulltime at Moncure Chessworks, I would often begin my days by driving down to Lee Iron and Metal to go shopping for the week’s work.

They are a scrap yard in Sanford, North Carolina, that is family owned and operated. As such I got to know everyone, from the crane operators who spent their days high above the yard, to the torch operators down in the mud, to the managers back at the scale.

My business, sculpture made from scrap metal, was an oddity to them. I was buying by the pickup truck and trailer load. Most of their customers buy by the train load.

Sanford is small industrial town, and as such it has a larger than normal scrap operation. I have dug through piles in scrap yards from Wilmington to Statesville and back again, and it is generally impossible to beat the selection and service of Lee Iron and Metal.

I don’t want to characterize the place as “little.” I have no idea how many people work there, but it could be over a hundred. And it is extremely capital intensive. Sorting scrap in volume requires massive cranes and sheers and equipment that would be in the millions and millions of dollars.

The price of scrap would rise and fall, and generally have no impact on my business. After all, I was buying stainless steel by the pound, bringing it back to the shop, and fashioning it into art which sold by the “piece.” While it is possible to watch your profits accumulate in your back yard, in the form of unused steel, it is difficult to make a meaningful connection between the price of the steel and the price of the piece. Ten dollars worth of scrap metal might be necessary to create a thousand dollar piece of work.

Just the same, I like markets, and I enjoyed watching the price of scrap rise and fall, and I was plugged into the rhythms of the scrap business in that I would watch the yard fill up and deplete based on higher or lower prices.

One day I was listening to NPR’s morning edition over breakfast, and heard that the currencies of southeast Asia had melted down. I yawned, thinking it would have no bearing on my life.

But that was the day that the scrap market in America stopped for many years.

To my astonishment, a currency collapse in Asia had an immediate, and direct impact on my sources of scrap metal.

I was intrigued to learn that most scrap metal in this country is exported to the far east. Apparently Alan Greenspan used to start his day by checking the spot markets for scrap metal as an early harbinger of inflation.

We send our scrap to the Pacific Rim, where it is re-manufactured into the consumer stuff we buy from that region. If scrap orders increase, prices increase, and it is a leading indicator of price increases in consumer goods.

What changed with the currency collapse was that manufacturers in the far east could no longer afford American scrap, and the countries of the former Soviet Union stepped in to fill the gap. That was hard on our scrap yards, since the quality of their scrap metal was better. Higher ore contents—more embodied energy—could be found in the less expensive steel from nearby Russia than in the stuff we were discarding.

And so it was that the scrap metal industry in this country took a back seat. The scrap business took it on the chin. And I had an object lesson in globalization: how a story about Asia on the radio has an impact on a family business in Sanford, which impacted little old Moncure Chessworks.

Two days ago I was on my way to dinner with Peter Denz, and caught a piece on Marketplace, a business show on NPR. Apparently the price of scrap has doubled over a year ago, and American scrap is back. One economist they interviewed basically said, “Stand by, this means inflation is coming….”

I may need to reconsider the piles of unused steel at Chessworks, and Summer Shop. Instead of looking at them as the forgone profits of years gone by, perhaps I should consider them as a sculptor’s 401K.

Posted by Lyle at March 25, 2004 05:04 AM