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Secondary Steel Report

A Firsthand Look at Secondary Steel

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MCN Editor Beth Gainer While non-prime steel is some industry professionals' bread and butter, others believe the material is losing ground in the marketplace. 

Secondary steel drives some industry professionals’ business. These individuals argue this product is quality material, often difficult to tell apart from prime steel – and offered at more affordable prices. Other than use for the automotive industry, secondary material has few limitations and a plethora of applications – from the RV, trailer, boat and dumpster industries to agricultural, construction, oil and energy sectors, data centers, racking and shelving, as well as in component manufacturing.

It takes savvy to know the secondary steel market and how the metal can and should be used. Dan Goldstein, vice president of sales and purchasing for Bala Cynwyd, Pa.-based Mainline Metals Inc., describes the material as the company’s “niche.” The business is a large distributor of excess and secondary steel. Approximately 70 percent of the company’s offerings is in excess and secondary, and 30 percent is full prime purchased from the mills. The company also owns a toll processing facility in Blytheville, Ark.

“A key to the excess and secondary market is reapplication,” Goldstein says. “Just because [secondary material] is not suitable for General Motors to make a side panel on a specific model automobile doesn’t mean it can’t be fantastic for a lower-end application, especially if it’s discounted.” He adds that while many manufacturers and service centers offer products that require full prime material, excess and secondary steel can be used “to lower the bottom line.”

Some of his customers want primary steel as well, which Mainline Metals also offers. These customers want excess and secondary suitable for their needs, but will also buy prime. “They specifically want suitable excess and secondary; when they can’t get enough of it, then they’ll complement it with prime,” Goldstein notes.

He points out that skyrocketing prices have led industry professionals to look for alternative solutions to prime steel in order to save money. “To many customers, available steel is available steel. A customer would say, ‘Before, I wouldn’t consider secondary for my needs, but maybe now I will because it’s available, and it’s cheaper compared to prime.’”

Matt Rhodes, owner of Chicago-based MTR Metals Corp. – a distributor that solely offers secondary material – makes sure he has a great relationship with the mills. “I have made a concerted effort to get involved directly with the mills, and I have not looked back,” he says, but adds that during the pandemic, when the supply was so constricted and the prices became exorbitant, he would purchase secondary steel from a couple of individuals on the open market.

And what makes material considered prime or secondary is sometimes a matter of semantics. “Excess and secondary is as much of an art as it is a technical sale because there’s so much subjectivity to it,” says Goldstein.

In some cases, excess material can be considered prime steel, he says. Take liquidation, for example. If a service center is closing a facility and wants to sell its inventory, Mainline gets involved with that market as well. That material is considered excess, “meaning that it’s prime; there’s nothing wrong with it, but it could be aged. It’s in a warehouse, and you don’t have the ability to have recourse at the mills. Recourse is a big part of that prime term, both in terms of what we buy and what we are able to offer our customers. We always stand behind our steel.”

Rhodes believes secondary steel has come a long way, thanks to new steel-making technologies minimills have employed. These technologies have improved steelmaking so dramatically one is hard-pressed to tell the difference between prime and secondary steel, he points out. However, “in many cases, the mill has downgraded the steel, not because it’s cosmetically inferior, but because the mill perceives the steel as less fit than primary steel,” he says. “There’s no difference in the integrity of the chemical makeup of the steel, usually very little difference from the cosmetic standpoint: there might be a little bit of rust, a little bit of discoloration or stain, but for a lot of people, it can still be painted and used.”

Less enamored of secondary material is Barry Gamson, general manager of Surplus Steel & Supply Inc., Apopka, Fla. At one time, secondary steel made up 70 percent of the company’s business, but now it makes up less than 20 percent. The business now focuses on new material from the mill – with papers. Gamson admits, though, that Surplus Steel seeks opportunities for secondary material for certain items, but “they’ve been less and harder to find in the last couple of years.”

He also points out secondary metal has limited use; for example, it is not used for load-bearing applications. “The larger load-bearing items have papers,” he says. “Most of the things secondary material is used for are small fixes, inside walls, it doesn’t necessarily have to be pretty; it can make anything: from a sculpture to actual replacement parts, as long as the material has the same size and specs.”

Paul Gedeon, president of Lane Steel Company Inc., McKees Rock, Pa., is even less enthusiastic about secondary material. The service center sells mostly prime, with secondary steel being about 25 percent of the company’s business. While most of the company’s customers buy prime steel, some turn to Lane’s secondary material to save money on items such as non-critical finished parts.

“The best thing for the mills is to make less of it. And a lot of the new mills make a lot less of it,” he says. “If they make less of it, then to dispose of it is not a concern because you have less to dispose of.”

Although secondary steel is not always the first choice for a business, it seems there will always be some demand for it. Rhodes says that during the pandemic, industry professionals initially believed no one would purchase steel, but to everyone’s surprise, steel was in higher demand than ever, but with little supply. “It was very difficult to get steel, so prime buyers were buying secondary steel and bidding it up,” thus eliminating the normally significant price gap between prime and secondary. 

The Future of Secondary Steel
Rhodes believes the future is bright for secondary material, mostly because the applications for this type of steel aren’t changing. He notes the RV and the trailer industry are very competitive. In the dumpster industry, companies are competing for the same business. “You can’t rely on 100 percent of your steel purchases being prime and be able to compete,” he says. “The cost is just too high.”

Gamson believes there will always be a market for secondary steel, especially those individuals who need small numbers of items versus truckloads. “Secondary material is more for the smaller-job guy. It’s not usually for a big project.”

Yet, he forecasts that as technology continues to improve, the mills will have less of this material, noting that recently there hasn’t been a large quantity of secondary material available. “As of the last few years, it’s dried up a good bit, just because there is so much prime material,” he says.

And secondary steel is not as inexpensive as it used to be. According to Gamson, it is much more expensive than prime material cost just a few years ago. “I don’t think anyone has a magic wand to figure out where the market is going at this point, so people are always cautious about buying material,” he says. 

Years ago, Lane Steel had contracts for secondary steel and faced a lot of competition “because if you were buying mill-direct, you had a good shot of doing pretty well with it. But there were always 100 people in line behind you who wanted your position,” says Gedeon. “Now those people don’t exist.”

He adds that many customers walked away from secondary because they purchased better equipment, so they had higher requirements in their metal – they need perfect, flat steel. Anything  less than that does not bode well for production, the machinery and the client. “With labor costs going up, equipment costs going up, you need the best product to go through your equipment. Because if it’s not good, and you’re not getting the output, it’s adding to your higher labor costs, and profitability will be in question. That’s why everybody needs good material to run, and that’s why secondary is less important than it was in the past.”

He says secondary material doesn’t always move and subsequently becomes scrapped. “There are some items in secondary that will always sell, and there’s a lot that will never sell. I think the best thing for a mill to do is not to try to make money off it, but to make less of it.”

“I think secondary steel is not going to grow,” he adds. “It’s probably still going to be used, but it’s going to be isolated and be used where it makes sense.”

However, Goldstein believes the excess and secondary market will be steady. “Do we want the mills to produce it? That’s not for us to say,” he acknowledges. “What is our place is to be a good outlet for the mills. We know how to work with it, we know how to sell it downstream, we know how to properly represent it, and the last thing that a mill wants is to have something that they produced to be out in the market that is misrepresented, even in secondary.” 

Caption:
This master coil bay includes hot-rolled, hot-rolled pickled and oiled, cold- rolled and galvanized coils, both prime and quality secondary steel, at Mainline Processing Inc. in Blytheville, Ark.  (Photo courtesy Mainline Metals Inc.)