Industry Healthier Than Early 2000s
According to economic indicators it appears that the metals market will contine to be strong for the rest of the year. As Recycling Today (RT) reports, there are a number of factors that contribute to the health of the scrap metal recycling industry (including economic outlook, taxes, etc.) but overall the forecast for the industry looks positive.
RT’s article focuses on the Mergers and Acquistions aspect of the metal recycling industry wherein larger companies may choose to consolidate and/or merge with other companies in the same industry. Because the current state of affairs is relatively good (buyers have significant amounts of cash at their disposal) it makes such mergers and acquisitions easier and less fraught with risk.
RT makes the comparison between today’s rosy economic outlook and that of two decades ago when many steel mills faced bankruptcy. When those mills eventually did go bankrupt, it caused a downturn in the industry specifically for smaller metal suppliers. With bankruptcy came consolidation of steel mills which increased their leverage in purchasing metals. Many smaller metal suppliers in the lurch. They just didn’t have the amount of metal to supply to these now-larger mills.
In 2008, two mills bought two of the nation’s biggest scrap companies which caused a drop in the prices of scrap metals due to a change in the supply and demand. Smaller scrap metal recycling firms have been struggling in some ways ever since and complain that these mega mergers are artificially reducing the prices of scrap metals thereby pricing them out of the market.
We expect M&A activity in the metal recycling market to be robust through the remainder of 2021. The current economic outlook, industry dynamics, the aging demographic of scrap company owners and tax rate changes are going to drive a busy second half of the year. Talk in the market of at least a dozen potential deals ranging in size from $5 million to $300 million-plus already provides insight into future activity. The final tally of completed transactions and the prices paid will tell the rest of the story.Recycling Today
These same smaller, local scrap metal yards continue to negotiate more and more hurdles in the industry as government regulations regarding recycling have gone into effect. Many owners may be looking to sell their companies because of things like increased regulation and taxes. Regarding taxes it is proposed that the capital gains tax will increase from 20% to almost 40% on gains in excess on one million dollars. This may not affect small, local owner-operated scrap yards but rather those companies looking to merge or acquire other companies.
All in all, as RT reports, metal recycling activity in 2021 looks to continue in its current healthy state. That lays the groundwork for more mergers and acquisitions and the effect on local scrap metal buyers and seller will remain to be seen. Currently, however, the metal recycling industry in the Los Angeles area continues to be strong and scrappers looking to make money by recycling have many options. Until and unless these mergers, acquisitions, regulations and taxes start to negatively affect these owner-operated yards