Slumping Recycled Metal Prices Prompt Schnitzer Cuts, Consolidation

Plummeting recycled metals prices have prompted Schnitzer Steel Industries Inc. to merge its metal recycling and auto parts business and initiate a cost reduction program.

The moves come after the Portland, Ore.-based Schnitzer reported a net loss of $196 million in its second fiscal quarter, with the metals recycling business losing $187 million for the period, according to a news release.

During the quarter, Schnitzer said market selling prices for recycled metals dropped the largest amount since 2008, with ferrous metal prices falling about 30 percent from first-quarter levels.

The Metal Recycling and Auto Parts businesses will become a single division by the end of this year. The company said the move is aimed to further optimize efficiencies in its operating platform, take advantage of synergies throughout its supply chain and global sales channel, and effectively use its shared services platform.

Schnitzer also is initiating a cost and capacity reduction program, and a productivity improvement initiative that it expects will improve financial performance by $60 million by the end of 2016.

The company anticipates about half of the $60 million in savings coming from its Metal Recycling business, through equipment idling (including reduced depreciation) and selling, general and administrative (SG&A) reductions. Another about 40 percent reduction will comes through its Auto Parts business, as result of closing of stores, SG&A reductions and productivity improvements.

Schnitzer expects about a quarter of the savings to be achieved in its 2015 fourth fiscal quarter. The company expects restructuring charges of about $10 million.

"In the face of steep declines in commodity prices, we are taking deliberate and substantial steps to continue to lower our operating costs and generate positive cash flow,” said Tamara Lundgren, Schnitzer president and CEO.

Markets have been affecting Schnitzer for quite some time. In August 2012 the company laid off 300 workers, or 7 percent of its workforce, in a restructuring move then prompted by declining ferrous metals markets. The Auto Parts business also was experiencing a 15-20 percent drop in revenue.

In February 2013 Schnitzer relocated its headquarters within Portland, which allowed the company to increase productivity by operating from a single location instead of the previous two facilities.

Schnitzer is one of the largest manufacturers and exporters of recycled ferrous metal products in North America, with operating facilities in 14 states, Puerto Rico and western Canada.

Detroit-based scrap recycler Sikora Metals posts a monthly update on the scrap market on its website, and it confirms the flat to depressed state of the market. In its April report it said, “There is still no certain answer as to if/when prices will start to climb again. We are hopeful there will be some increases this summer, but that is no guarantee.”