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Co-operation Eases the Commodity Crunch

Over the past year, 50 metal scrapyards in North America have ceased operations and hundreds of others are stockpiling their inventories under the pretense of waiting out the downswing in prices for steel, iron ore, and other commodities, and for the demand slowdown and oversupply in China.

By Jessica Kirby, Solid Waste & Recycling Magazine

In the US, this means a stall in the $105-billion industry, which includes many small businesses associated with the scrap sector. US scrap steel exports fell to $4.1 billion in 2015, down 34% from $6.2 billion in 2014, and index prices say scrap steel prices have fallen 29% to $203 a ton from $261 per ton a year ago in the US.

Canadian recyclers are also feeling the pinch, but for them it is a two-sided coin. Low prices, dips in the mining sector, and global demand – items affecting the auto recycling economy in general – are global issues, but Canadians have an unsurprising advantage—their co-operative nature.

The actual business of auto recycling in Canada is North American in nature says Steve Fletcher, managing director for the Automotive Recyclers of Canada (ARC). Fletcher says the economy is very much integrated with the US when it comes to suppliers, buyers, participants, and how they approach business.

“We share a lot in common, but Canada is often times more progressive than the US in terms of how the industry is evolving,” he says. “Canadians have a strong ability to co-operate. We have common problems and approach it as, ‘So, how do I solve this’ rather than looking for blame.”

Important progress towards leveling the playing field and professionalizing the industry has been mostly positive, but progress can be a drawback for some smaller operations not in the position to make sweeping regulatory changes to comply.

Auto recycling regulation hasn’t seen a significant overhaul since the 70s at which time minimal requirements were put in place to obtain a licence. Over the past five years, ARC has been encouraging the provincial governments to modernize their legislation and adopt its voluntary Canadian Auto Recyclers’ Environmental Code (CAREC)–essentially, a road map of how auto recyclers should improve compliance and demonstrate best practices.

“We are telling them there is a problem with the way vehicles are being depolluted,” says Fletcher. “People always want the metals, but the difficulty lies in how the vehicles are prepared for shredding and how the metallic recovery is done. There are many things in a car that need to be stewarded.”

British Columbia was the first to implement a requirement to have an environmental management system in place about eight years ago. In March, Ontario passed a requirement for a processing standard for anyone in vehicle recycling, making it against the law to shred a car that has not been depolluted.

PEI has a similar regulation in place requiring recyclers to meet updated environmental rules and regulations, and with three provinces on board the momentum is gaining. Other provinces are beginning to ramp up their inclinations for minimum standards and best practices.

“Our industry is unique in that the inventory required comes from end-of-life vehicles,” says Fletcher. “We can’t order them; we have to find the vehicles, store them, and do the sales activity needed to make profit. When there are no standards, the person with the lowest operating standards can bid the most and we think 50 to 60 per cent of vehicles are not going to legitimate auto recyclers.”

While the regulation is overwhelmingly positive, equalizing the standard and outlining environmental and legal responsibilities, for some smaller recyclers this may mean they close their doors, reduce their operating time, or sell their operations.

There are approximately 1600 auto recyclers in Canada – an estimate, given there is no definition at the provincial level – and approximately 400 of them are ARC members, processing 40 per cent of the volume in Canada.

The number or recyclers in general is down—five years ago ARC had 140 members in Ontario, for example, and now the number rests around 120.

“The biannual CAREC audit weaned out seven or eight and we lose about four a year while gaining one or two,” says Fletcher. “Most of those who don’t renew have sold and are not operating or closed, or maybe only operating a day a week. Overall we are seeing about a five per cent decline in sited facility counts.”

Despite challenges, there has never been a better time to professionalize the industry. Cars are becoming more complex and their components are becoming more valuable—they are basically computers on wheels, says Fletcher.

Cars have been light-weighted with plastic and carbon fibre – both with no recycling value – as well as more aluminum, which is suffering less price-wise than ferrous metals. But the newest and more influential change in technology is the increasing prevalence of hybrid batteries, which are not always profitable and can actually carry a cost for disposal.

Interestingly, hybrid batteries are being repurposed for energy grid storage because at 70 per cent of their lives they cannot power a car but, connected in a group, can store energy. “There is a lot of research in that area,” says Fletcher, “and a lot of potential for alternative energy sources like wind or solar.”

Luckily the nature of the auto recycling industry is such that once new technologies arrive on the markets, recyclers can have eight or nine years to monitor trends and decide how they will deal with them.

“When unibody vehicles came out everybody thought it would be the end of industry,” says Fletcher. “We will be processing 2016 cars eight, nine, ten years from now so there is lots of time to see the recalls, analyze requests, and search out vehicles for certain parts.”

Cars are expected to become more complex over the next two to three years and as a result there is a huge outcry for data from manufacturers, who are often resistant to provide it.

“We need the data required for us to sell more parts and compete,” he says. “This is primarily a North American issue. Around the world where there are EPR laws making manufacturers responsible for the product at the end of its life, manufacturers tend to supply more data and tell what is in the cars.

That said, the rest of the world would love to be in North America’s position when it comes to part sales volume and progress.

“We sell more parts off of a vehicle,” says Fletcher. “This is where they want to be in terms of profitability and developing the industry.”

The Canadian industry will continue the push for standardization and work with the US with the understanding that that country is better equipped to lobby for significant change.

“Whether you consider the changes good, bad, or indifferent, you have to be aware of them and if you want an exit strategy you have to run a regulated, clean facility,” says Fletcher. “You just need to know the trends and prepare yourself accordingly.”