Markets for demolition material on the rise

The scrap market for steel always has been active in the United States, but many old I-beams now are headed for a new destination: China. As this emerging nation grows, its domestic steel production is outpaced consistently by its booming infrastructure and the government’s aggressive shipbuilding goals.

Although recent lifting of U.S. tariffs was expected to stabilize the market closer to home, the supply of worldwide steel is coming up short. The upward trend in Chinese scrap consumption is clear (see table below).

Compared with other markets, scrap markets enjoy a trade surplus in the face of an overall trade deficit in the United States, as well as political support for free trade agreements and a weakened dollar.

Domestically, West Coast markets are closer to the buyer and generally have the advantage over East Coast markets—the Big Dig notwithstanding. But combating the shortage is a constant theme: Chinese markets hoarded inventory to insulate themselves against a forecasted spike in post-holiday (Chinese New Year) prices.

There is no indication that the trends will slow. According to Advanced Steel Recovery’s (ASR) Advanced Scrap Report (February 2005), China intends to become the world’s largest shipbuilder by 2015. Similarly, urbanization rates (the rate at which people move to cities), which typically correlate to steel consumption, also are on the rise. Li Shijun, deputy secretary-general of the China Iron and Steel Association, said that U.S. consumption of steel did not flag until urbanization rates exceeded 65 percent; China’s urbanization rate was 37.7 in 2001.

How to protect your project

In 2004, structural steel wasn’t nearly as hard hit as reinforcing bar, joists, and cold rolled products, which saw prices more than double. One idea for insulating your project against price fluctuations is to talk to the market early in the project, says John Cross, P.E., vice president of marketing for the American Institute of Steel Construction (AISC).

Base the project cost assumptions on the latest data available, and try to shift the risk of pricing fluctuations to the contractor through the bid specification.

If demolition is involved in the project, the same rule applies—talk to the market. Historically, the demolition contractor includes salvage rights in its contract. However, developers are starting to take notice of this undervalued revenue stream. By following market prices for post-consumer materials, project managers can save a bundle (or at least price the job more accurately).

Information is king. Thinking one’s way up and down the supply chain can reduce project costs for services and materials. Many vendors help the project manager dance with the commodity game—the AISC’s Steel Solutions Center (1-888-ask-aisc), www.metalinfo.com, and www.metalprices.com are a few. Finding the time to do the research is always a challenge, but the time pays for itself many times over.

Markets for post-consumer material extend well beyond steel. As supplies of virgin material become more expensive to harvest and transport, local supplies of post-consumer materials are becoming increasingly attractive. As steel has become a revenue stream for most demolition projects, so have old-growth timbers. Other materials will follow the trend; China also is hungry for plastics.

Environmental tradeoffs

China is buying scrap at good prices, creating a revenue stream for projects, but at what external cost? The U.S. Green Building Council requires more and more chain of custody reporting, tracing the route of recycled materials to their end use. While the process required to obtain the materials there is not currently measured in terms of toxicity, it’s only a matter of time.

Manufacturing processes take a heavy toll on the environment.

Pan Yue, deputy head of the Chinese State Environmental Protection Administration, is well aware of the tradeoffs of pulling the manufacturing industry along without appropriate environmental consideration.

So, is China serious about environmental protection? Many reports point to a positive direction, but numbers can be made to say many things. As tempting as it is to take the money and run, a minimal level of chain of custody reporting is a good idea. As LEED projects and reporting requirements become the standard, builders need to consider the ripple effects of their decisions on the buying and selling sides.

It’s not just an I-beam. It’s a structural element, of course, but it’s also an industry, a commodity, other countries, and a reflecting pool of the complexities of the fluctuating economy. Those ripple effects could be shimmering in a pool near you.

Amy Bauman is the president of greenGoat, a New England-based demolition and reclamation consultant. She can be reached at abauman@greengoat.org. To learn more about post-consumer commodities and how the building industry in New England is beginning to see waste as product, go to www.greengoat.org.

Sidebar: Petroleum prices play a part

In North America, consumption of scrap steel is unpredictable in that one of the largest consumers of steel, the U.S. automobile industry, is losing market share to the more fuelefficient cars of foreign automakers. In a time of rising fuel costs, car buyers are voting with their dollars, and Toyota sales have never been better.

Additionally, as supplies of virgin materials and fossil fuels dwindle, many construction materials manufacturers are trying to unlock the potential of post-consumer feedstock. When faced with rising costs to transport virgin material from Canada, Georgia Pacific, a gypsum wallboard manufacturer, decided to hedge its bets by expanding its recycling process.