The steel scrap industry is still highly fragmented and does not yet attract the degree of financial buyers as other areas of the steel industry, noted Frank A. McGrew IV, a Managing Director of Morgan Joseph & Co. Inc., at the fourth annual Steel Scrap and Scrap Substitute Conference.
According to McGrew, although global merger and acquisitions in the steel industry is at record levels, there is little private equity activity in the top 20 ferrous scrap processing companies. He adds that consolidation is likely, considering the largest company in the industry holds less than 10 percent market share.
McGrew also notes that the demand for steel is high, steel production is increasing and there is a high price benchmarked for hot rolled band at the $500 ton range instead of the $300 ton range it had been trading at. In addition, since commodity prices have increased over the past three years and raw material is trading at record levels, stock prices for publicly traded scrap metal companies have risen significantly.
McGrew told the Conference that he sees the opportunity for new platform companies to be created from strategic acquisitions.
“We believe there are acquisition opportunities and interest, especially among private equity companies, as owners of small private companies look to cash out,” McGrew said.