Seven Simple Ways Your Business Can Increase the Value of its Scrap Metal
In any transaction it is absolutely essential that the seller understands the value of the product being sold. If a seller does not understand what something is worth, the consequences can be painful. For instance, nobody wants to be the guy who sold a multi-million dollar Honus Wagner baseball card at a garage sale for a couple of dollars. While this may seem obvious in most aspects of life, many businesses are woefully undereducated when it comes to the value of the scrap metal they generate. This lack of education is understandable. Scrap metal is generally ancillary to the core drivers of most businesses. Conceptionally, scrap metal is all too often an afterthought, something grouped under the category of waste; that is, a byproduct of production that is simply a cost of doing business. However, this assumption is wrong. Unlike solid waste and many types of household recyclables, scrap metal has a robust market value. Given its market demand, scrap metal doesn’t belong on the expense side of the ledger. Scrap steel, copper, brass, aluminum, and other metals should be thought of as a supplemental source of revenue. In fact, for some industries, scrap metal generation can be a substantial source of profit.
When properly seen as a revenue generator, it is easy to understand why it is important to invest time to learning more about scrap metal. Unfortunately, few businesses make this investment. This leaves them vulnerable. For unscrupulous recyclers, these uneducated patrons are rubes, ripe for exploitation. However, not all recyclers look at the situation through such cynical eyes. For ethical recyclers, like Colorado Industrial Recycling, uneducated consumers are a source of constant frustration. We invest lots of labor into sorting and processing material that was misidentified by our customers. The effort we put into cleaning poorly sorted material bogs down the efficiency of our operation. This, in turn, reduces what we can afford to pay the customer. We will gladly pay the customer more when we can receive material already sorted, classified, and packaged correctly.
Thankfully, there are seven simple things any business can do to maximize the value of its scrap metal.
#1. Identify the Type of Metals Generated by your Operation
Knowledge is power. To be effective in managing your metal recycling program, you need to know what types of metals you have. Although there are dozens of different categories of metal, it is likely that your operation only deals with a handful. This means you can afford to narrow your effort to the specific metals you have. Consequently, it is always a good idea to do some research about the metals used in the products you sell and/or produce. It is also important to identify the types of metals used in the supplies and/or parts used to support your operations. Keep in mind that recycling is a volume-based business. The more weight recycled, the more revenue you will produce. Most scrap yards offer different tiers of pricing based upon the volumes being generated. Approaching a metal recycler with accurate information about the types of metals you produce and the volumes you anticipate generating will allow the recycler to price your metal accurately.
#2. Understand the Factors that Influence Value
The best way to make money on the metal you recycle is to have a general understanding about how the scrap metal industry operates. Most of the mistakes we see from our customers occur because they are too simplistic in how they think about value. You do not need to be an expert in the industry, but it is helpful to think holistically about the drivers of value. Indeed, you need to know there are many factors that influence the worth of your material. Effective material management is not simply about monitoring the Commodity Exchange (COMEX) and London Metal Exchange (LME) market price of copper, brass, or aluminum. You need to understand the specific properties of your material, the volumes you generate, and the cost drivers of your operations. Specifically, an assessment of value should consider the following:
- COMEX and LME Market Price: Metal commodities are like stock prices. The price goes up and down due to speculation regarding global supply and demand. The influencers of price are generally very complex and can change rapidly. These market fluctuations are almost impossible to anticipate. Don’t try and hedge the market! That said, it is important to monitor these macro changes in market price to anticipate what your material will be worth when you execute a sale. Having a sense of these trends can help you prioritize effectively.
- Yield: COMEX and LME pricing reflects the price for metal that is 100% one category or another. However, it is pretty rare for a business to generate a product that is 100% copper, 100% yellow brass, 100% aluminum, etc. Most forms of scrap metal are going to be cross contaminated to a certain extent. Any product with weld points, screws, or that was manufactured by blending materials together has been cross contaminated. A motor for example, might contain copper, but it also likely contains steel, nickel, cobalt, and many other metals. How closely the material matches the COMEX or LME price will be determined by its yield, that is, the percentage of its volume that is comprised of the primary base metal.
- Volume: Virtually every transaction in the scrap industry is based upon weight. Most scrap yards are working off very tight margins. For this reason, economies of scale are critical. The price you receive for your material will most likely be dictated by the volume provided. When prioritizing your efforts, it is worthwhile to actually do the math by multiplying price by anticipated weight. Just because something is worth more per pound doesn’t make it your most valuable commodity! How much you generate is also critical.
- Labor: When dealing with cross-contaminated metal, it is sometimes possible to improve the yield by “cleaning” the material. This process can result in material being bumped from an inferior purchasing category to a higher value classification (i.e. removing contaminates increases the yield). This labor can involve removing packaging, disassembling components, and, for some businesses, actually shearing the product. However, it is critical to utilize this labor in an intelligent fashion. Graduating material from one purchasing category to another may increase the price a few cents per pound, but it is important to monitor how much effort is spent making that upgrade. It is easy to get upside down by spending way too much time cleaning material for what amounts to minimal gain. This is a mistake a lot of businesses make. Spending several hours cleaning a small volume of material to increase the price by a few cents is not beneficial! It also does not need to be all or nothing. It is often prudent to set limits on the labor being devoted. For instance, allocate thirty minutes to sorting a box. If the thirty minutes elapses and there is more work to do, cut your losses and accept that some of the material will be downgraded. It is likely you knocked out the low hanging fruit in the time you did allocate.
- Space: It is usually necessary to accumulate material over time to generate the volume needed for a sale. This requires facility space to house the containers needed to store the material as it slowly accumulates. How much space is available will dictate how much volume can be generated in between sales.
- Transportation Cost: When dealing with material with low margins, transportation can be very impactful to value. Understanding the cost of shipping is critical when performing price comparisons. Finding a scrap yard that offers a few cents more a pound is not beneficial if those cents are absorbed by added shipping costs.
- Opportunity Cost: Whenever allocating resources to improving the return on scrap metal, it is always important to understand that your resources are limited. Time or labor spent on one activity will likely come at the expense of doing some other activity. For this reason, it is important to prioritize effectively. This usually means focusing on the low hanging fruit items before devoting resources to more labor-intensive activities.
#3. Invest in a Magnet
This might seem simple, but one of the most important tools in identifying scrap metal is a handheld magnet. It is not always possible to visually distinguish between different types of metals. It is easy to be fooled by how material looks on the surface. Dave and Mike Koscove have been around scrap metal their entire lives, and they still use magnets to help identify metal. If they need a magnet to help identify, you will need one too!
Finding out if a piece of metal is magnetic (ferrous) or non-magnetic (nonferrous) is a quick shortcut to finding out its value. By and large, nonferrous metals have significantly more value than ferrous metal. If a piece of metal sticks to a magnet, it is probably not going to be worth spending a lot of labor or time trying to classify, sort, and clean it.
#4. Sort Metal as Close to the Point of Generation as Possible
Sorting through a full container of mixed metals is hard work. From an efficiency standpoint, it is important to not touch material more than is necessary. Therefore, secondary sortation should be avoided whenever possible. This is best accomplished by setting up unique containers for each metal generated at the point of accumulation. Not all the containers need to be the same size. Keeping a small shipping box on the side for slow accumulating, but high value items, can significantly improve the return on your scrap metal. Of course, having multiple containers is only effective if you have the space to stage those receptacles, and if your staff members are diligent about identifying and sorting the material as they go.
#5. Always Cut Cords
Copper is king! Due to its high market value, copper is one of the most coveted metals in the scrap industry. Most power cords and other forms of wire contain significant amounts of copper. Consequently, simply cutting and separating out the power cords from recycled appliances, AV units, and other electrically powered items can be an easy source of revenue.
#6. Choose the Correct Size of Container
As discussed above, it is important to understand what metals your business generates. However, it is just as important to understand how fast those metals accumulate and how much space is available to stage the material between sales. A one size fits all approach doesn’t work for most businesses. Space is a scarce commodity at many job sites. If space constraints require a business to use a smaller container, it is important to anticipate more frequent sales (and more transportation costs). Even when space is not an issue, choosing the right size container is an important consideration. Different commodities accumulate at different rates. Having valuable metal in too large a container, could mean a significant delay between sales. A smart business picks a container size that reflects the rate of accumulation.
Many scrap yards have different size containers they can provide customers. It is important to always explore all the options available. Colorado Industrial Recycling has over a dozen different types of containers we can make available to our customers. These containers are provided at no charge for 90 days before a rental fee is applied. Therefore, it is important that our customers choose a container they can fill in less than three months to prevent those charges from going into effect. The terms offered from one scrap yard may be very different than those offered at another. All businesses need to understand the terms offered by their chosen recycling vendor.
#7. Visit your Scrap Yard
From the outside looking in, it can be difficult to differentiate between metal recycling providers. There are typically a lot of similarities in the services offered across the industry. However, not all scrap yards are the same. There are often stark differences in best management practices from one scrap yard to the next. Thankfully, these differences are very apparent once you step foot in the yard. Metal recyclers that care about environmental integrity and the health and safety of their workforce look very different from scrap yards that disregard these concerns. These differences are apparent to the layman. Is the scrap yard a fun, clean, environment or does it make you feel uncomfortable?
Typically, the quality of an operation also provides a window into the ethics and professionalism of that business. Can you have confidence the scrap provider will accurately account for your metal when the yard is dirty, chaotic, and disorganized? If a scrap yard does not think twice about cutting corners on its legal and environmental obligations, can you really trust them to have the integrity to pay you what you deserve? It’s important to vet your provider by touring their facility.
Visiting your scrap yard is also a great way to learn more about the metal you generate. Many scrap yards are very generous when it comes to educating customers. For instance, Colorado Industrial Recycling always seeks to build true partnerships with our customers. In the interest of building a long-term relationship, we always encourage customers to visit our facility to learn more about metal and best management practices. Colorado Industrial Recycling considers an educated customer, a good customer. These tours offer an opportunity to discuss the challenges being faced by the customer and allow us to explore creative ways to maximize their return on scrap metal. For customers that show the interest, we offer training sessions for their staff both in our yard and at the customer site. We are willing to go the extra mile to help our customers maximize the value of their scrap metal, because doing so builds customers for life. Every customer should seek to develop this type of partnership with their recycling provider.
At the end of the day, most businesses can improve their return on scrap metal for relatively little investment. You do not need to reinvent the wheel. The challenges faced by your business are probably the same issues being faced by other organizations as well. Smart businesses draw from the experience of businesses that have overcome those obstacles. The resources are out there for businesses that know where to look.