Better production from the steel mills limits the amount of secondary on the market, but there remains a place for non-prime material in the supply chain. With improved technological processes, the modern steel mill is far more efficient and productive than in years’ past. But mistakes, whether subtle or significant, in production or planning, are the heart of the secondary steel market.
Barry Gamson, executive vice president, Surplus Steel and Supply, Orlando, Fla., says mills have increased their efficiency so they don’t make as many mistakes. Due to technology advances, the recipe is more perfected so there are fewer issues. There used to be issues with quality or overproduction. However, they’ve gotten their systems down a lot better over the past 10 years and so there seems to be less non-prime steel, he acknowledges.
“Talking about the future, they’ve gotten more efficient and better and it’s not like that’s going to go backwards. They’re only going to keep getting better and have less of that material,” says Noah Gamson, sales, Surplus Steel and Supply, Orlando, Fla., states.
Despite the producers understandably and continuously working on minimizing the secondary steel they produce as a part of their process, it still comes about. It’s an inevitable byproduct. “There is always going to be quite a bit of that that comes about from a volume standpoint, maybe not as a percentage of the mills’ overall production, but when you’re talking about a mill that’s producing a million, two million tons of steel, and all the other ways that secondary comes about, there are a lot of tons in the marketplace so I don’t feel like it’s a small market,” says Dan Goldstein, executive vice president of business development, Mainline Metals, Conshohocken, Pa.
In addition, some feel that secondary steel is a small market because it’s a market most people want to shrink. “The market exists because it’s material that didn’t work for its intended purposes so the mills are incentivized to be more efficient and reduce the size of the market. I’d say especially these days, the users of steel are going to high-speed optimized manufacturing processes and no longer have the ability to use a wide variety of specifications. So, on both sides of the market, it’s shrinking,” says Max Levin, CEO, Titan Steel, Baltimore.
Furthermore, often customers are unaware they can purchase less-than-prime material, which has the same structural quality as normal carbon steel but may have surface rust or other minor defects. “If there’s no need for aesthetically pleasing material – such as when it will be covered up or painted – they don’t realize they can buy something just as strong and of the same quality, just not as visually appealing,” says Jonathan Dunnam, customer operations manager, SteelNow, Houston.
Next, with mill consolidations, there will be some changes with secondary steel. Goldstein says this allows for some more consistency in pricing, which is both good and bad. “Ultimately I believe the market prevails so you’re seeing hopefully a little tighter of a price structure between different mills because it’s not 30 mills and 30 different prices, selling it 30 different ways. The mills have done a good job within their own family of mill locations of the way they sell steel, the price that they sell steel, to whom they sell steel and how they sell steel. There’s a lot of uniformity.”
There are also potential drawbacks to consolidation. If something is priced above the market, you’re going to see that at a couple different places. Goldstein adds, “It’s not that one mill’s over market and that’s their prerogative but when you see that same steel overpriced over market in maybe five locations then that becomes more of an accentuated issue. Now the mills still do a pretty good job of pricing so usually that shakes out pretty quickly.”
“I think with consolidation it means there’s going to be changing views on the mill side on how to best approach the product. There have been mills that have really seen secondary as a relationship product. Due to the changing nature of non-prime, they want to have relationships with certain buyers of it and it’s more of a negotiation. There are other mills that want to use very transparent bidding platforms so I think with mill consolidation it’s going to in general move things more toward these open bidding platforms and away from the old relationship format,” Levin states.
Outside of the mills’ efficiencies, there are other matters of concern for secondary steel. Levin says there are inherent challenges with the market because it’s ever changing. You never know what’s going to be available in the market. In addition to that, you have a lot of people who don’t want it to exist and the sales theories of the mills have changed over time, with many of them seeing non-prime or secondary steel sold in the market as a ton of prime steel that could have been sold. “So one of the big challenges is having all the participants in the market agree that it is a useful part of the market and something that should be embraced and not scrapped or shipped offshore.”
In addition, Goldstein notes that many of the challenges facing the prime steel market are present in the secondary steel segment. This can include market pricing changing, availability, scheduling and lead times. At the moment, prime pricing was adjusting slightly downward but secondary has not gone down as much, creating a smaller gap in pricing between the two. “For the manufacturers that can use it and consume it, there has got to be a price incentive for them to do so. If the other option is full prime at not enough of a percentage over that secondary number then it takes a lot of the incentive and a lot of the value proposition out of the secondary item. It’s important that that gap remains and really that goes on both sides of the equation.”
According to Barry Gamson, metal is like chocolate. They just melt it and remake it. Today, the people who are producing it are the same people who are collecting it in this country and so if it doesn’t run properly, they just put it back into a furnace and remake it. “Most of the material is made, especially in the last 20 years, from recycled material. Plus, there’s less import today than there has been.”
Furthermore, the mills are going to continue to get better at what they do, there are going to be fewer defects, less rejected material, fewer errors that generate secondary steel and also a continuation of customers demanding more specialized products. These days they really have the ability to tailor a steel production to exactly what the customer needs, and it may be that only one customer uses that exact spec, which means as a secondary product it becomes more difficult to sell in the market,” he says.
“I think that will continue in the future even though we have some advantages with technology and things like that that have made working with secondary steel a little bit easier,” Levin says.
As with prime steel consumers, the swings in secondary steel pricing create unease. Goldstein says managing and mitigating the risk from a price and availability perspective is one of his key concerns.
“In the last four years, we have seen the peak of the peaks and the bottom of the bottom and the biggest changes within those peaks and valleys that the steel industry has ever really seen. Obviously, COVID had a definite impact on steel production, on labor, on supply chain, all of which are very consequential to the market,” he adds.
In addition, customers want pricing neutralizers. They want some predictability, they want to be able to standardize their cost and so the marketplace is still looking for mechanisms to provide those neutralizing conditions.
“There are those indexes, so you can enter into an agreement with a customer where if things go up, you go up together; if things go down, you go down together. You do it so you can enter into a longer term ongoing agreement, but it’s got to be a win-win. I think the market is still working on that. I think we’re much further along in that process than a decade ago, but it’s still progressing,” Goldstein comments.
Yet, Dunnam says, “Customers need to be aware that less-than-prime material often doesn’t come with a ‘mill certification,’ which is required on some projects. Additionally, cleaning up the surface rust can create extra work for the end user.”
Equally important, there have been some changes that have occurred with secondary steel. Levin explains technology has been a big part of this market. In the past a lot of people would have to remember all the customers and specifications and variations that they could potentially use just in their head, and now with technology it’s a little bit easier to sort through.
“We have a specification that shows up from a mill. We have technology that helps us apply it and figure out where to sell it and what the proper price point is, so that has helped and I think will continue to help. A lot of people are trying to apply artificial intelligence to this market to figure out if it’s better to scrap it or to sell it. I don’t know if artificial intelligence is going to be something the steel market embraces with open arms but eventually we will all get there,” Levin acknowledges.
Lastly, are there secrets to the success for secondary steel? Dunnam says success lies in conveying to customers about the availability of less-than-prime materials and how it can be used. Fabricators and contractors should be aware that these materials can save money while still meeting application requirements. “Leveraging a vast network to source less-than-prime materials can be crucial. Knowing where to find these structurally sound, cost-effective options is key for meeting customer needs.”
Moreover, Barry Gamson says working hard, staying in the game, keeping your eyes and ears open are the most important things for a distributor “That’s basically the secret – finding it and offering it at a little bit of a discounted price and a lot of the things we buy are new material but if you can sprinkle it [non-prime] in with the new material that helps bring the overall picture down. I always say that if it goes behind a wall or if it’s something that’s on top of a building, no one really cares as much as if you’re facing it or you’re looking at it.”
“We need to know our market. We need to know who’s willing to buy secondary steel, who’s going to go for the more prime stuff. We just have to know who our customer is,” Noah Gamson adds.
Next, Levin explains that he doesn’t know if there are secrets but this is a product that’s not well defined, that’s not well understood by many people so it’s important to have a lot of trust with the mill and with the customer because most times the mill will just say that the product is secondary and may not list exactly what’s wrong with it. The customer will have to trust you to provide something that works with them, so trust is always critical.
Finally, Goldstein calls it the secret sauce. “Our success is rooted in our core values, so first and foremost is strong communication. We try to be experts in our field. That includes being resourceful, respectful and always learning.”
Caption:
Minor defects, such as rust, can make an otherwise useful piece of steel one destined for the secondary business. (Photo courtesy Surplus Steel and Supply)