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Asia has been the leading source of driving up th...

Some see scrap, some see cash, some see the lifeb...

EngINtel: Trying To Find Cores And Components Likely To Scare The ‘Scrap’ Out Of You

Faithful readers will recognize that I rarely editorialize within EngIntel but I’m getting on my soapbox now. This issue has become one of the biggest struggles in the engine remanufacturing sector and it is the lifeline of this industry. It is like the head of a snake: you can cut it off and the body will wiggle around for some time but it will eventually die. Such is the availability of engine and engine component cores: if you cannot get cores you can’t remanufacture engines.

Now before you think that I have been in the back room sampling the liquor cabinet, let me give you a few facts of life about what is happening. The world scrap market has taken away the lifeblood of our engine core availability. You may think of scrap yards as nothing more than those places that you see driving by on the interstate with mountains of metal. As kids we used to call them Mount Trashmore or something just as witty. We certainly didn’t give them much respect.

The early beginnings of scrap were typically local since the material was heavy and hard to move, but with today’s transportation and shipping options it has become a global market. Someone figured out that containers being shipped into the U.S. with imported goods (especially from China) were going back empty. Since they were going back empty anyway they became the perfect receptacle to haul scrap back for literally next to nothing.

Since steel in particular has two methods of production. One is to create virgin steel from iron ore and coke, the other is to melt down used steel and recycle it. Recycled is just as good as virgin and unlike paper and plastic it has no structural memory, so steel can be melted down and recast indefinitely. In fact, in 2006 two out of every three tons of U.S.-made steel was made from recycled scrap.

The U.S. is no longer the largest manufacturer of steel but is the largest producer of scrap. Just as the steel industry (and every other) has consolidated to a world market so now has the scrap business followed. Asia has been the leading source of driving up the prices of scrap and hence the value of engine cores since automotive engine cores are some of the highest quality of scrap metal, whether it’s cast, steel or aluminum.

To give you a barometer of how things have changed, in 2001 steel scrap was around $75 a ton; in 2006 it was $300 and has even gone higher today. Think of it like this: The scrap industry flourishes on what it does NOT throw away. The scrap industry is one of the “greenest” things in the world, and has been going on way before anyone ever heard of the term.

Technology has also added to the problem. Even if you have an opportunity to witness a mega- or super-shredder you still may not believe what they are capable of. These machines can take a vehicle whole and have it literally shredded into little pieces that you can hold in your hand and sorted by steel, cast aluminum plastic and whatever else may be of value. Not only that but it happens in a matter of seconds. This industry has become so refined that it even saves rust. Yes, that’s right, because rust is metal and can be used as furnace charge.

The scrap industry looks at any event as opportunity. Sad as it was, the destruction of the World Trade Center on 9-11 created over one hundred thousand tons of high-grade inventory. Likewise, Hurricane Katrina and even the fall of Saddam Hussein’s empire all were opportunities of scrap. The 1960s and ’70s were glorious times for scrap as it was produced in unprecedented volume to the point that it was even used as landfill. Alan Greenspan, former chairman of the Federal Reserve, once said that he didn’t need to study a lot of economic indicators to sense where the economy was headed; he needed only to look at the scrap and metal prices.

Most of the scrap metal that goes to China is turned into metal to be used for the construction of the huge skyscrapers sprouting up everywhere during what is invariably the fastest industrial revolution the world has seen. However, much of it returns to the U.S. as engine castings for new cars, coffee pots, grills, bicycles and a host of consumer products that we purchase each and every day. Which, by the way, get used up and thrown away only to have the process start all over again.

Here is a thought that may get you to thinking: What do you do when a penny is worth more in scrap than as a coin? In December 2006 the U.S. mint issued new regulations against melting of coins for fear of a run on not only pennies but nickels as well. In today’s economic crunch graveyards are having metal and bronze plaques stolen. Beer kegs from the back of restaurants, air conditioning condensers, aluminum bleachers from schools, even roadside light poles are disappearing. We won’t even talk about the amount of people being electrocuted attempting to get copper.

I had a conversation with Bill Stolberg from AA Midwest in Chicago, one of the major engine core suppliers in the industry, and asked him when will scrap get high enough that they will no longer pull engines out of vehicles to be available as engine cores? His reply? “We are already there.” He told me that he had three scrap facilities that had him remove his trailers for that very reason – they were no longer removing any drivetrain components, just shredding the entire vehicle because it is all weight. Add to that the current situation in which hard-to-get engine cores are now having a bounty put on them by major PERs and you have a situation that is going to only get worse before it gets better.

So if you are a PER or CER today and you need engine or engine component cores, get ready to hold on, because all bets are off and higher prices and less availability are in. If you can’t find a way to work through that you are in trouble. Ultimately it means higher prices at a time where no one is willing to pay more because they just don’t have it to pay.

And it’s not just the unavailability of cores that will cause a problem. Parts manufacturers are also trying to figure out what to do as well due to raw material price increases.
It’s a good thing that we are not in a recession, only an economic downturn, right?

Roy Berndt has decades of machine shop experience. He is the EDS Data Acquisition Contractor for the Production Engine Remanufacturers Association (PERA), and Program Manager for PROFormance Powertrain Products, a PER in Springfield, MO. rberndt@enginebuildermag.com