Shipbreakers Paying Gov't For Chance At Scrap Metal

Soaring scrap metal prices have led companies that were paid to recycle rusted frigates and tankers to begin paying the federal government to get ahold of all that valuable steel.

BROWNSVILLE, Texas (AP) -- The air tastes like pennies at this gritty port at the southern tip of Texas, where ships' final voyages end and steel is reborn.

Recycling here is big business, on a scale that counts in thousands of tons, not pounds. It's where torch-wielding workers strip ships' decks and cut their hulls for the metal to form new steel that could end up in washing machines or even new ships.

For years the federal government paid the shipbreakers at the Port of Brownsville -- the center of the U.S. shipbreaking industry -- to dispose of its rusted frigates and tankers.

But soaring scrap metal prices have led these companies to begin paying the federal government for the chance to get ahold of all that valuable steel.

International Shipbreaking Ltd. recently began recycling Adonis, an 18,000-ton tanker built in 1966. The company paid the U.S. Maritime Administration an unprecedented $1.1 million for the privilege, on top of the cost of towing it from the reserve fleet's home in Beaumont, Texas, nearly 700 miles up the Gulf Coast.

''That was directly influenced by the price of scrap,'' said ISL's chief operating officer, Bob Berry.

The Navy, which also contracts with shipbreakers to dispose of warships, isn't allowed to take money from the companies, but was able to give Esco Marine Inc. a symbolic 1 cent to take the USS Puget Sound off its hands this year.

That means the Puget Sound's metal is expected to more than cover the cost of towing it from Philadelphia and the work of removing hazardous materials, including asbestos and toxic PCBs.

''We're at numbers we've never seen before for iron and steel scrap,'' said Bob Garino, director of commodities with the Institute of Scrap Recycling Industries. Looking over the last 25 years of prices for the benchmark ''No. 1 heavy melt,'' which in April hit $502.50 per gross ton, Garino said, ''there's not even a close second.''

Just last year, the average price for the No. 1 heavy melt steel was $254 per gross ton, Garino said. In 2001, when the Maritime Administration was struggling to clear its inventory of ships, the same steel averaged $75 per gross ton.

Sky-high prices for scrap metal are allowing the Maritime Administration to stretch its funding further and recycle more of its ships.

In 2001, the average recycling cost per ton for the Maritime Administration was $253. Last year it fell to $60.

Demand for scrap metal has been a major factor both in dictating what shipbreakers are willing to pay and in drawing more of them into the business domestically. The Maritime Administration has seven certified companies, two of which the Navy shares. When the Maritime Administration started the current program in 2001, there were three.

Four companies' yards are spread around the end of the Brownsville port's 17-mile man-made channel to the Gulf of Mexico. A fifth, Virginia-based company is waiting for its permit to be approved by the U.S. Army Corps of Engineers.

The Navy had about 200 ships to dispose of in 1997 and now has 15 designated for scrapping. Some others were sunk for training and others to form reefs.

The domestic industry depends heavily on government contracts because commercial owners can dispose of ships more cheaply overseas, where there is little or no regulation. Brownsville's shipbreakers also hope that the Maritime Administration will resume sending its West Coast ships to their port. Environmental concerns about the ships carrying species on their hulls that can wreak havoc on local ecosystems as well as concerns over the lead paint released by attempts to clean them have frozen the ships' movement since early last year.

For years, the Maritime Administration made money for the government selling old ships to be scrapped overseas. But in the 1990s the Environmental Protection Agency decided that doing that violated a ban on the government exporting PCBs, said Maritime Administration spokeswoman Shannon Russell.

That, combined with low prices for steel at the time, led ships to begin piling up, Russell said.

Six ships -- two Navy, four Maritime Administration -- were in various stages of dismantling recently at Esco Marine. Those farthest along were beached in earthen slips, where winches pulled the remaining hulls into the reach of cutters' torches.

Acrid smoke and sparks blew from the cutting pads. Heavy haulers and cranes rumbled around dirt tracks and a constant jingling emanated from a glistening mountain of metal, where a new shredder reduced smashed cars into fist-sized pieces of metal in 45 seconds.

Esco sells most of its ferrous scrap to steel mills in the United States. It is loaded onto barges and sent to mills in Beaumont, New Orleans, and Mobile, Ala., said company President Richard Jaross.

The high scrap prices have allowed Esco to expand, adding the monstrous shredder last year.

Driving the price higher are a variety of factors including tight supply, a weak dollar, high energy prices and rising raw material costs as well as fierce international competition among countries such as China and Turkey, Garino said. Last year, the United States exported 13.7 million metric tons of ferrous scrap, up 27 percent from the previous year.

Climbing over the Adonis last week, Berry saw value in nearly everything. With a glance at the massive propellor and a quick calculation, he put the prop's estimated scrap value at $125,000.

Jason Glasscock, ISL's environmental and safety program manager, said, ''it's hard calling it scrap when it's worth that much money.''

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