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Report n°2: An integrated approach to economic and social contestability in business

The scrap metal recycler

The metal recycling activity that provides the empirical basis for the proposed analysis can be broken down into four sequences: (1) the purchase of batches of materials on an upstream market from "suppliers-clients" (from a domestic market and by importation), (2) the recycling of the materials and processing of the various types of waste generated by the recycling processes and (3) the sale of the ferrous, non-ferrous fractions (according to the conventional term "at a positive price") on the domestic or export market, and the sale of the re-usable waste ("at negative prices" - valorisation of the material and valorisation of the energy) and, finally, (4) the elimination of the ultimate wastes.

The material processing activity therefore takes place at the centre of a branch of activity sandwiched between an input market (the material "to be recycled") upstream, and an output market (the "recycled" material) downstream. On the input market(14), the recycling operators are supplied with batches of materials including a variable fraction of ferrous material. Different types of suppliers also referred to as "collectors"(15) offer such materials for sale. Transactions involving batches of materials from the recycling process (shredding or shearing-compacting) take place on a second market, the output or "secondary raw materials" market.

The classification generally chosen to categorise the flows of scrap metal offered for sale on the input market is based on three categories: (1) scrap from steel manufacturers and foundries (2) offcuts from the production or conversion process (coming from the activities of metal manufacture and the conversion of steel), (3) scrap recovered or collected by scrap metal merchants or from demolition sites and flows of imported scrap metal.

The weight and quality of a batch are the criteria that will determine the revenue of the supplier (collector). The quality of the pieces of scrap (and therefore of the batches they make up) depends on the size of the ferrous fraction in the batch (percentage of total weight), its cleanliness, thickness, density and dimensions. The combinations of these criteria result in a hierarchy of quality categories ("grades") into which the batches offered by the supplier are entered. In addition to the "waste fraction" included in each piece of metal, two other types of waste are taken into account when evaluating the quality of a batch. The price offered and/or the net weight effectively taken into account to determine the payment made to the collector will be reviewed downwards if the batch contains one or other of these types of waste. The first type of waste (generally approved using a so-called "cleanness" criterion) finds its source in the conditions of storage of the scrap prior to delivery and/or the particular extraction conditions. The price of a given quality of scrap may therefore be reduced if the buyer deems the proportion of this type of waste to be excessive. A second type of waste is referred to as "abnormal waste", this category includes such diverse wastes as straw, concrete slabs, wooden pallets, safe boxes, oxygen cylinders, water or oil hidden in the tank of an end-of-life vehicle ("ELV"). All of these are sources of risks of pollution or of industrial accidents during the shredding or the compacting/shearing of the materials. When this type of waste is discovered, the net weight is marked down. Depending on the type of waste, the amount of the markdown is conventionally fixed (e.g. a truck tyre: 100 kg) or if not, the assessment is left to the purchaser's discretion (concrete slab, contaminated earth, straw, etc.).

Once purchased, the batches are sorted according to characteristics that define their quality and taking into account the type of recycling process to which they will be subjected. For the activity under consideration here, two processing treatments can be applied to the batches of ferrous metals: compacting-shearing and shredding. In the first case, the size of the materials supplied merely has to be reduced ("dimensioning"). Scrap parts containing a non-ferrous fraction (copper, for instance) and a "waste" fraction (insulating foam, for instance) will be shredded. The shredder enables separating the different fractions: ferrous metals, non-ferrous metals and the non-metallic fraction. The ferrous fraction obtained after shredding is called "secondary raw material" and has to comply with the specifications of the steel manufacturer to whom it is sold. This flow of recycled material is used in electric arc furnace to manufacture consumer and investment goods or, more rarely, is exported. The ultimate "non-reusable" waste obtained after processing and separation of the non-ferrous fractions (metal and non-metal fractions are combined at this stage) generated by the shredder will be dumped in a specialized landfill site, depending on their type (dangerous / non-dangerous waste).

(14) In the remainder of this paper, we will use the terms "upstream market" and "input market" interchangeably to mean exchanges between suppliers of material for recycling and the recycling operator. Similarly the "downstream" market and the "output" market for exchanges with customers also mean the same thing.

(15) The recycler makes a distinction between the collectors depending on their knowledge of the qualities of scrap metal, and their capacity to supply. Small collectors have a limited knowledge of the range of qualities useful to the recycler, while the larger collectors have a wider knowledge of the quality and value of the scrap metal delivered to the recycler.