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All That Junk
In the recycling biz, everything old is new again
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Business New Haven
3/22/1999
By: Sharon Cohen
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The business of recycling is ingrained in American history.
First came peddlers searching for worn-out implements, rags and bones - anything that had resale value. A century later arrived hundreds of immigrants, opening their own scrap businesses.
And today thousands of recyclers, from family-owned concerns to large corporations, each year handle 100 million-plus tons of recyclables destined for domestic and overseas markets.
All these recyclers, regardless of size or commodity, have had to deal with change to survive: The rise and fall of demand and prices has always made the scrap market among the most volatile. And the growing impact of the regulatory environment in recent decades has brought numerous challenges and impediments to the recycling industry.
“Each year I owned this business, I slept like a baby - I woke up every half-hour and cried,” recalls Michael Schiavone with a chuckle. “There were so many problems to deal with alone.”
In 1972 he became the third-generation operator of Michael Schiavone & Sons, a New Haven recycler of all types of ferrous (e.g., iron and steel) and nonferrous (e.g., copper, aluminum, brass, lead) scrap metal. Last July his business was acquired by Metal Management Inc., a firm that operates 60 metal-recycling centers in 15 states. This fiscal year the Chicago-based company expects to do $1 billion in sales. The stress has abated since he joined Metal Management, adds Schiavone. “Now I sleep very well.”
Schiavone's decision to sell out to Metal Management was not an easy one, he says. “I had mixed emotions and wrestled for and against it for some time,” especially because the business was so much apart of his family's history. At the end of the 19th century, his namesake and grandfather Michael Schiavone started the business after moving from Italy to Argentina to the U.S. His son, Joseph, left the practice of law in 1937 and expanded the business until his death in late '70s.
“I always was expected - and always wanted - to take over the business,” says Schiavone, who joined in 1963 and took over the helm in 1972.
One-third of Schiavone's metal comes from industrial scrap originating with local companies, one-third from automobiles and one-third from obsolete scrap from building demolition and machinery. Eighty percent of the metal goes on ships to Korea, Turkey, Mexico, India, Taiwan and Thailand. The rest goes on barges or trucks to domestic steel mills.
Market fluctuations have always presented a challenge - not as great a challenge, however, as government interference, says Schiavone. In 1963, 25 percent of his time was spent on fulfilling government regulations. That number, he says, has grown three times over the past several years.
According to the industry's association, the Institute of Scrap Recycling Industries (ISRI), metal scrap recyclers face federal Superfund liability for having sold material to a facility that contaminated its own property.
Collectors of scrap paper face state and local regulations requiring them to have plastic liners under their premises - even though they are built on solid concrete that doesn't leach - because they are solid-waste facilities and the local rules assume that all such facilities are landfills.
And exporters of specification-grade secondary plastic find willing buyers abroad but face monumental hurdles put in place by their buyers' governments to halt the dumping of foreign garbage in their countries.
These problems, states an article in Phoenix, a publication of the scrap recycling industries, spring from the common misconception that recycling is a subset of waste disposal. “Recycling extends the life of materials produced from such non-renewable natural resources as ores, oil and gas. Waste disposal terminates the usefulness of these materials by incineration or land application. Recycling is not a method of waste disposal, but rather its exact opposite,” reports the publication.
Steve Zamkov, owner of the Marcus Paper Co. in New Haven, says it's the ups and downs of the market that have plagued his business over the years. “You have no idea what it's like to be in the valley once you've been to the mountain top,” he comments on the highs and lows of the commodities.
“This is the purest supply-and-demand industry in the world. If the end consumer wants it, our customers will pay. If not, they won't.”
In 1972 Zamkov graduated from college and joined the firm, where his father and Maurice Marcus were partners. His father took over the company in 1983.
One of the deepest valleys in Zamkov's business started in 1998, in large part due to the problems in Asia and Latin America and slow domestic growth. According to ISRI, for the domestic paper and paperboard industries, last year was characterized by little or no growth compared to recent years. Meanwhile, as 1998 ended, processors of scrap paper were seeing average prices achieving lows not experienced for years.
They attributed the lower selling prices to the cumulative effects of a sluggish market for paper and paperboard, compounded by relatively soft export markets and weak demand for wood pulp. Increasing mill downtimes added to the downslide.
And 1999 doesn't look much better, reports Resource Information Systems in Bedford, Mass. Slow economic growth in the U.S. and Asia will hold down paper and paperboard production, while market conditions for recovered paper are projected to remain flat. These factors will combine with other trends, such as the reduction of North American papermaking capacity through mergers and acquisitions and perhaps some mill closings.
Even in downturns, recyclers such as Marcus must continue to get paper from their suppliers. “The companies that supply us with paper still rely on us, regardless of the market,” says Zamkov. “It's easy to turn off supply, but not easy to turn it back on once situations improve.”
Zamkov says it's common to have one or two good years and then five to seven bad ones. As an example he recalls 1995 and 1996, “when the market was unbelievable.”
So what do smart companies do to prepare for deflation? Make the best of the good times and sock money away for those rainy days, he suggests. “It's great to be king of the mountain when the market is up. But you always have to worry about climbing out of those valleys.”
In poor market times, business people turn paper around as fast as they can, continually seek out new markets and customers, call in favors and “do a lot of prayer vigils,” Zamkov laughs. And sometimes you have to move the paper at a cheaper price just so it doesn't pile up.
As Zamkov's father used to say, “It's always better to have poor merchandise in the good times than to have good merchandise in poorer times.”
Zamkov talks about how so many different things, large and small, can impact demand. The corrugated market does very well, he says, when the paper mills see winter storms in their suppliers' geographical locations. Even the perception of storms will make them panic and order more inventory. This is especially true since many mills operate on short just-in-time schedules.
“One day when we were watching the news, my daughter couldn't believe her eyes when I started dancing for joy. The commentator had just announced that the strength of the dollar was declining.” That meant to Zamkov that the large international markets, especially in the Pacific Rim, would be able to buy more - which could greatly impact his future business.
Zamkov says just like his father, he has always made a living - some years better than others. The business also helps to support Marcus' 17 employees. However he doesn't recommend the recycling business to anyone else, including his children. “I'm the last generation running this business. My mother warned me not to follow my father. It's a very hard, very physically and mentally demanding business.”
“Some people in the industry say that for some grades of paper this is the worst condition they remember for the past 20 years,” says Sales Manager Bob Patterson of Automated Material Handling in Kensington. For support, the 25-year-old recycling plant now utilizes the resources of parent company Waste Management North America based in Houston, Tex. The acquisition occurred in January of this year.
Waste Management owns recycling facilities, as well as 133 solid waste and seven hazardous landfills nationwide. “Waste Management has a staff dedicated to keeping track of global opportunities, changes in the commodities market, the paper industry and the needs of the mills,” says Patterson. “They also do a lot of marketing to new mills and other potential customers.” Automated can also team with other Waste Management plants, such as the ones in South Windsor and Norwich, to share resources and fill customers' needs.
Automated employs about 70 employees at its two on-site facilities: one for paper recycling and the other for bottles, cans and plastic. It sends materials to numerous domestic and international markets.
\drop cap\One way it has lowered costs and provided better service to customers is by using freight trains in addition to ships and trucks for delivery. The firm leased a railroad spur adjacent to its property so it can move high volumes - 50-65 tons per rail car vs. 20-23 tons per truckload - of material to customers throughout the eastern U.S. This way it can support mills looking for large tonnages and economical shipping points.
“It's a very competitive business and you can never let your guard down,” adds Patterson. To have the best pricing and services is always important, but consistent quality is even more essential, he adds. Since recycling is primarily a manual business, due to stringent separation requirements, Automated ensures quality through ongoing training of employees as well as maintaining high standards.
Will all the smaller businesses merge or close down in the near future? Acquisitions continue apace, but much slower than in previous years, says ISRI. There are also thousands of independent recyclers who are prepared to wait until the market swings again, despite the many challenges involved.
After all, recycling has been around since at least 3000 B.C., when iron-making began, so it ought to be good for a few more years.
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