Fading scrap metal business

Photo: Eero Vabamägi

Estonian scrap metal handlers say that people are running out of scrap metal and the recently profitable business lacks new growth potential.

„We see fewer and fewer people coming to us with metal buckets, chain-link fences, and other clutter. No one has any thick iron left. Soviet era agriculture equipment and building constructions ran out a long time ago,“ Kuldar Suits, head of market leader Kuusakoski said.

Suits said that people have managed to collect most of the scrap metal that was left lying around over the past 25 years, which is why it is simply running out. Another problem is that people are moving to cities while city districts produce less scrap metal. „There is still scrap metal in rural areas; however, there are no people,“ he said.

Other major scrap metal handlers echo Suits. „I think that the campaign of clearing old farmsteads of scrap metal is nearing completion. Our system will become European; people will bring us small quantities of home appliances and electronics,“ said financial manager at Cronimet Metall OÜ Mikk Paaksi.

Member of the board of BLRT Refonda Baltic OÜ Konstantin Gordijenko gave another simple reason in that fewer things are made from iron these days as the material is replaced with alternatives, like plastics for example. He admitted, however, that utilization of old vehicles is on the rise as cars in Estonia are gradually replaced with newer ones.

Struggle for business clients

Disappearance of private clients first and foremost translates into falling production volumes and it becoming harder to operate profitably. „Looking to the future, there is no great growth on the horizon. It is a matter of survival. Competition is fierce, and the fight will largely be over corporate clients,“ Paaksi said.

Kuusakoski used to handle 300,000 tons of scrap metal a year, while the figure has now dropped to around 120,000 tons. Individuals only make up a third of the company's clients, with the focus now on servicing major companies.

This new course offers more stable income as it is far less dependent on fluctuation of buying-in prices. One of the biggest clients of Kuusakoski is Ericsson Eesti that provides the handler with leftover electronics. Other important clients include industrial automation provider ABB and cable companies.

Offering services to exacting business clients is one avenue in which Suits perceives the opportunity to at least maintain stable income. „We have a competitive edge over smaller companies here as we are able to offer the full service: use our own trucks for timely pick-up and certified processing,“ he said.

Asked where could Kuusakoski find new growth, Suits said the company will concentrate on offering a quality service to make the lives of clients easier. The company will not drop private clients as people still bring in scrap metal, especially in spring. „Metal will never run out completely, which is why the private client will always be there.“

One possibility is to organize campaigns and go where people are. Kuusakoski has collected old cars free of charge. The company has also installed big boxes in Tallinn's Nõmme borough where people could leave their scrap. Even though the company hoped to collect scrap metal, the reality was different.

„People put their clutter and metal into the boxes during the day. However, what happened at night was that someone picked out all the scrap metal and left everything you need to pay to handle behind at night. A part of this stolen metal was brought to us and some reached our competitors,“ Suits said. He added that such campaigns are very successful in Finland because of different culture. „Our standard of living is simply too low still.“

Unpredictable markets

The buying-in price plays a central role in the scrap metal business, at least in the eyes of the client. For a long time the price remained so low that people simply couldn't be bothered to take scrap metal to buyers. While the price of ferrous metals is now a little higher than the previous level of €40 per ton, fluctuations remain.

„The scrap metal market has become horribly unstable as of late, and this has its effect on people,“ Suits revealed. If in the past it was possible to divine the market based on holiday schedules of European steel mills or Ramadan in Turkey, these days it is utterly unpredictable, Suits said.

Figuratively speaking, it could easily happen that the price at which handlers buy metal in Põlva might be the same as what is paid in Turkey, that buys the lion's share of Estonian scrap metal, two months later.

However, companies want to turn a profit. That is why Suits says the Estonian market will remain a game of cat and mouse of who can cut better deals and take advantage of fluctuations more skillfully.

„We are in a volatile environment, while we still need a proper average selling price to make a profit for the owner at the end of the day,“ he said. Kuusakoski was forced to settle for a loss of €2.5 million the year before last.

Mikk Paaksi also said that unpredictable prices make for a serious blow to exporters. Because the amount of available scrap metal is falling, it is now difficult to assemble quantities of 20,000 tons, which is the minimum load that can be sent to Turkey. It takes up to five months.

That is why Cronimet has increasingly turned its gaze elsewhere and is buying up scrap metal also in Latvia, Lithuania, Finland, and Sweden. Paaksi added that because the scrap metal business has been in crisis for years, several global players are set to go bankrupt. „The coming years will show how the Estonian scrap metal business will develop, and whether and how handlers can survive trying times,“ he said.

Kuldar Suits said that even though it is difficult to turn a stable profit, the company will press on under full steam. Gordijenko said that Refonda's production volumes are stable and will rather grow.

Another obstacle on the road to growing production is shortage of qualified labor. „Scrap metal handlers must aim for flexibility and efficiency today,“ he summarized.