Domestic market keeps scrap business out of the heap

As global manufacturing has boomed in recent years, the demand for commodities has skyrocketed. As a result, the United States has shipped millions of tons of scrap steel, aluminum, copper and other metals to emerging markets, as those countries seek more material for their products.

But things have changed in the last several months, as the global financial crisis has put the brakes on international demand for the American scrap metal, said Art Arnstein, one of the owners of United Milwaukee Scrap LLC.

“There are virtually no overseas orders now with the lack of credit in the global and domestic markets,” he said. “The global markets have shut down temporarily. China, Korea, Pakistan, they’re all shut down. The credit problem has become a global problem. The first nine months of 2008 were better than the first nine months of 2007, but from September to the end of the year will be disastrous.”

United Milwaukee Scrap has six locations on Milwaukee’s northwest side.

The company employs about 120 people. Despite the slowdown, it has avoided layoffs, but has cut overtime.

United Milwaukee Scrap has been able to keep most of its employees because it has maintained a stable of domestic customers in recent years, even though it could have made more money by only selling scrap to the international market.

“We were smart enough to keep some of our domestic customers,” Arnstein said. “We’re always building relationship, even if they’re for less money. Those domestic customers have become our lifeline.”

The scrap business is now ripe for consolidation, Arnstein said, because there are so many struggling businesses.

“The cream will come to the top,” he said.

United Milwaukee Scrap looked at an acquisition earlier this year, but pulled back in September.

“We were in expansion mode, but the financial crisis put a hold on it,” Arnstein said. However, the company will likely revisit that acquisition once business picks back up, he said.

Arnstein believes that global demand for U.S. scrap metal will come back in the next 60 to 90 days, but does not believe the international market will be as robust as it was earlier this year and over the last several years.

“(The global markets) will open somewhat, but it will be different,” he said. “It will be slower. We’re all (in the scrap business) affected by the global recession, and the surpluses and buyers of material are not as plentiful.”

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