Canaccord Genuity on Sustainability/Recycling: Keeping a Watchful Eye on Shredding Overcapacity in the Scrap Market
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Rating Summary:
15 Buy, 8 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Canaccord Genuity on Sustainability -- Recycling: Thoughts From The Scrap Heap - Keeping a watchful eye on shredding overcapacity in the scrap market
Canaccord analyst, Eric Prouty, said, "A few weeks ago we discussed the issue of shredding overcapacity within the domestic scrap industry. To briefly summarize, there is growing concern about this issue as more and more shredders come on line. In fact, Steel Dynamics (Nasdaq: STLD) recently told us that shredding capacity in the US has increased approximately 65% since 2002 (without a similar increase in scrap supplies). A sizable amount of new shredding capacity followed the boom years of 2007/2008, when scrap prices soared and scrap flows improved sharply as people rushed to cash in. Now that these shredders are in place, their owners have to “feed the beast” and are forced to bid very aggressively for material. In this hyper-competitive environment, generating sufficient volumes has become the topmost concern for some operators, often superseding margins/profits as primary business decision drivers."
"Last week, we asked Schnitzer’s (Nasdaq: SCHN)(BUY-rated) management on their conference call whether they were experiencing increased competition from new shredders (SCHN currently operates megashredders in Tacoma, Wash.; Portland, Ore.; Oakland, Calif.; and Everett, Mass.). The answer was a firm “no.” CEO Tamara Lundgren explained that the company was seeing “strong supplies” and “good supply flows” in its markets and was not seeing “any problems from overcapacity.” That’s not to say that SCHN faces no competition from other shredders, in our view, but simply that SCHN operates in markets that aren’t oversupplied with competing shredders."
"West Coast Recycling Group's (WCRG) commentary is worth noting, in our view, not only because it’s the latest example of a company adding shredding capacity, but because WCRG seems to be encroaching on SCHN’s and Sims Metal Management’s (NYSE: SMS)(BUY-rated) turf in Northern Calif. As we noted, while SCHN faces competition for scrap in its markets, we don’t think the company has gotten caught up in some of the all-out battles for material seen in the most intensely competitive markets."
Canaccord analyst, Eric Prouty, said, "A few weeks ago we discussed the issue of shredding overcapacity within the domestic scrap industry. To briefly summarize, there is growing concern about this issue as more and more shredders come on line. In fact, Steel Dynamics (Nasdaq: STLD) recently told us that shredding capacity in the US has increased approximately 65% since 2002 (without a similar increase in scrap supplies). A sizable amount of new shredding capacity followed the boom years of 2007/2008, when scrap prices soared and scrap flows improved sharply as people rushed to cash in. Now that these shredders are in place, their owners have to “feed the beast” and are forced to bid very aggressively for material. In this hyper-competitive environment, generating sufficient volumes has become the topmost concern for some operators, often superseding margins/profits as primary business decision drivers."
"Last week, we asked Schnitzer’s (Nasdaq: SCHN)(BUY-rated) management on their conference call whether they were experiencing increased competition from new shredders (SCHN currently operates megashredders in Tacoma, Wash.; Portland, Ore.; Oakland, Calif.; and Everett, Mass.). The answer was a firm “no.” CEO Tamara Lundgren explained that the company was seeing “strong supplies” and “good supply flows” in its markets and was not seeing “any problems from overcapacity.” That’s not to say that SCHN faces no competition from other shredders, in our view, but simply that SCHN operates in markets that aren’t oversupplied with competing shredders."
"West Coast Recycling Group's (WCRG) commentary is worth noting, in our view, not only because it’s the latest example of a company adding shredding capacity, but because WCRG seems to be encroaching on SCHN’s and Sims Metal Management’s (NYSE: SMS)(BUY-rated) turf in Northern Calif. As we noted, while SCHN faces competition for scrap in its markets, we don’t think the company has gotten caught up in some of the all-out battles for material seen in the most intensely competitive markets."
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