Total noob here. I may have just hit a mother load. I need help!

Ok, so I have a friend of mine who works in industry. He was recently put in charge of getting rid of all of his company's scrap steel. He is from a foreign country and has no real knowledge of the scrap metals industry. They are having a real problem getting their scrap steel picked up on time from the company that is currently hauling it away. He was telling me this is getting him in trouble at work. I asked him how much steel they get rid of a month and he told me roughly 1 million pounds a month! The company that is currently picking up the steel picks it up and hauls it roughly 250 miles away.

I instantly thought this could be a great opportunity to help him and make some cash as well. The scrap metal is steel drums. They compact it into bundles on-site and load that into containers. I have the money behind me to purchase the metal and to handle the shipping of it to a scrap yard. What I don't have is any real knowledge of the scrap metal industry and how it works in volumes like this. I have seen #1 HMS ( I believe this is the metal drums are made from ) going for 370-395 per GT. When I have called some of the local scrap yards, they are pricing it at roughly 200-210 per GT. What is not making sense to me is that he said the company currently picking it up pays 288 per GT.

So if they are paying 288 per GT and round trip hauling it 500 miles round trip, what I am missing here? He told me the current shipper is not locked into any form of a contract and that I could get one through him. Any help would be greatly appreciated. If any of you have any other questions to help me put this puzzle together please let me know. Many thanks in advance!

Do you personally know this friend from another country, or is this someone you have met, and spoken with, only via the internet?

In what country does the company generating the scrap metal, located in?

When referring to the material, it's usually referred to as HMS #1 or HMS 1, 2 etc. Depending on what form the iron is in, and what it's qualities are.

In all the time I spent in International Trade, I never came into contact with anyone who was selling HMS by GT, it was almost always MT or if not KG. GT can mean two different things, it could mean "Gross Ton" in reference to "Long Ton". Or it could be referring to ship measurements in that they measure the capacity of a ships hold in GT, not MT.

Long Ton = 2240 lbs

Metric Ton = 2000

If the entity that is selling the HMS is selling by the Long Ton or Gross Ton however they want to describe it, this might be the reason they seem to be being paid more because there is actually more of it than a MT which is the measurement most commonly used in referring to the weight of HMS for sale.

If you have not met this person, and only know them through the internet or phone conversations, and they are involved in international trade they most likely do not work for the company selling the scrap. Scrap metal companies don't hire people that do not already have prior experience they can apply. Brokers often claim to work for a company, or to be the sellers mandate etc in order to make themselves seem more legit. Because this particular person is referring to the scrap as #! HMS, and because they are using a unit of measurement that the industry does not use to sell quantities of HMS scrap, I agree with what you have previously said, that they do not have experience in this field. Furthermore, this throws up red flags so far as I am concerned, and would lead me to believe this is a person who does not only not understand the market, but has no experience with conducting these types of transactions. This is not someone you want to do business with. It sounds like a broker to me.

But not all is lost, if this is in fact a broker, and not a personal friend you have known in real life over a length of time, you can instead of dealing with them, sign a broker agreement that would be included in the letter of credit documents a bank would issue so that they were guaranteed to be paid out a specific monetary compensation, per lb. Because he is claiming to represent the buyer, this really should come from the sale side of the transaction, but because he's probably just a broker, he probably does not have direct access to the seller, and thus you need to get him out of the way by agreeing to this broker fee so you can get to the real seller.

I sometimes encountered broker chains that seemed endless, and sometimes would create a huge circle of brokers that ended with one of the original ones. Brokers post these types of transactions, others pick them up and then offer them again, and during these offers the price is changed, or some other information to make the transaction seem more profitable, then the original broker picks it up as a new offer and passes it along again in an endless circle of shady offers. I learned fast to ignore any offer where the broker was not either directly talking with the company, or not working for whoever it was directly talking with the company. You will waste all your time trying to make something happen, and never get anywhere. So if there are brokers in the middle of the transaction, you need to sign a brokers agreement and get them out of the way.

Also, if this is an international transaction, you need to ensure it's being conducted in the way the International Chamber of Commerce, or ICC and the world trade bank you are doing business with lays out how it should be done. You need to issue a letter of credit against their proof of product, and these things are conducted strictly by bank to bank confirmation. If someone is offering you "POP" or "Proof of Product" against a "LOC" or "Letter of Credit" or the other forms of a letter of credit like a "Confirmed Letter of Credit, Transferable Letter of Credit, Non Revocable Letter of Credit, Revolving Letter of Credit, or even a Confirmed Non Revocable Transferable Revolving Letter of Credit" it should be done by bank to bank, not person to person or buyer to broker, etc. What some brokers do is ask for a copy of a LOC, and then use that to secure another deal where some other broker is requesting a copy of an LOC. Another trick, specially in West African nations, is to use a bank set up for the purpose of only scamming, that shows a fake POP, the bank exchange of information is legit, but the information is not. Once they get the letter of credit and lock it up, they can then submit the letter of credit to another banking institution and either factor it, as it's not confirmed and secured, or take a loan out against it. All these things commonly happen are all things that can be avoided if you understand the market and what you are doing.

I am giving you a lot of information that took me years to learn myself, but there is far more when attempting to conduct an international trade deal that I haven't stated. I'm not sure if this is the type of transaction you are asking about, so I'll reserve blabbing more about it until you can clarify.

So far as the price for HMS is concerned, it varies greatly, in some places of the world, you can purchase it for $150-$200 per MT. In other places of the world it might cost almost $400 per MT. There are so many factors that determine prices that you need to be exceedingly careful and understand the transportation and market value before you commit to any contract. If your friend is telling you the truth and just using incorrect terms, the reason why the company upset, and the reason the buyer is bulking at buying, and the reason there isn't a contract in place is because the metals market right now is very volatile. Whatever you do, specially if you nor your friend understand the dynamics of the metal markets, do not sign any contracts promising any specific price per MT. Never sign a contract for any length of time promising any specific monetary compensation per MT. What you agree upon is a specific market price, for example I use London Fixed to price Precious Metals, and sell at a discounted percentage against London Fixed, or an increased percentage against London Spot depending upon what form I am selling it in. There are similar market indicators for scrap HMS as well. Your agreement, if you do end up signing any contract, should be in a specific percentage of the market pricing that currently prevail.

In my humble opinion, and taking what you have stated strictly at truth value, and based only on the little bit of information you have posted, I would say that your friend is a broker, or wishes to be and is selling an offer made to him, but not the "sellers mandate" or directly representing the company selling the HMS.

What I would NOT do:

Give any of your personal information, many times people will ask for a passport to "prove" you are a real person

Do not give out your address, drivers license, SS# none of this information is required because all the information for the transaction are conducted bank to bank, and it's the banks that ensure the information.

Do not give out your business information beyond phone number, no paperwork should be required to be sent to your business address, and if you are dealing with scam artists, they will use your information and claim they are you in an attempt to conduct business elsewhere, using your good name.

Do not prove your financial situation to anyone, for the reasons I have posted above and because you don't ever want to give anyone your personal financial information under any circumstances unless they are a bank, your CPA, accountant, etc you get the idea.

I could probably say a lot more, and will if you post more information. I may have over posted on this thread, but my concern when I read the terms #1 HMS and GT threw up all kinds of red flags in my mind, and I hate hate hate hearing about people getting burned on international transactions. I spent many many years in this arena and have personally seen so many scams and bogus offers that I could probably write a book, or several books on the subject.

One last note, the link I am going to provide right under this is to a trade site, probably the most reputable and populated on the internet. Yet I can almost guarantee that the majority of the offers are not real, even the ones that are "confirmed" are more than likely not real. Only the company is confirmed, not the transaction.

These are offers on HMS 1,2 currently being offered on alibaba:

Hms 1-Hms 1 Manufacturers, Suppliers and Exporters on Alibaba.comSteel Scrap

Scott

I started to read this, then realized how long it was haha I bet there is tons of useful info in there though I'll just wait for a rainy day to finish haha

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Originally Posted by bigdog72

I started to read this, then realized how long it was haha I bet there is tons of useful info in there though I'll just wait for a rainy day to finish haha

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I apologize for that, I tend to write walls of text sometimes. Seems like an international trade deal, seems like the friend is a broker and not working for the company he is representing material of, and it seems like there is something fishy going on that the OP hasn't discovered yet and that his friend might not know about.

More or less, the short version.

Scott

great job watching out!

Excellent post as always Scott, regardless of it being long or not.

I for one found it an insightful read, an learned some thing about operating out of the country. I'm always skeptical when it comes to outside the country deals, for all the reasons you mentioned. Scams abound folks..they are everywhere. Knowing this an how to protect yourself is always a good thing.

I've learned something useful today, for that I say thanks!

Sirscrapalot - I'm against picketing, but I don't know how to show it. - Mitch Hedberg

First post and already have a lead on a million pounds of steel. Seems legit.

Hi Scott,

I am confident it is not a scam or a broker. I do personally know the guy. He has been a neighbor of mine for several years. We have taken vacations together and our kids play daily. He is just an employee for the company but was promoted and this has fallen under his area of responsibility now. He is not trying to get any personal information from me but I appreciate the heads up and all the information you have taken the time to write for me. If I can put this deal together I may be looking at a new career in the metals business as this would be a great foundation of income to start a business from, and that above information will help me greatly. I do have more information available. I wasn't sure what all I should just blast out in a public forum. You seem like the perfect person to help me facilitate this deal. Would you mind if I direct messaged you my phone number? If you could help me put this together I would be happy to pay you for your time as a consultant.

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Originally Posted by Wafflemason

Hi Scott,

I am confident it is not a scam or a broker. I do personally know the guy. He has been a neighbor of mine for several years. We have taken vacations together and our kids play daily. He is just an employee for the company but was promoted and this has fallen under his area of responsibility now. He is not trying to get any personal information from me but I appreciate the heads up and all the information you have taken the time to write for me. If I can put this deal together I may be looking at a new career in the metals business as this would be a great foundation of income to start a business from, and that above information will help me greatly. I do have more information available. I wasn't sure what all I should just blast out in a public forum. You seem like the perfect person to help me facilitate this deal. Would you mind if I direct messaged you my phone number? If you could help me put this together I would be happy to pay you for your time as a consultant.

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I apologize for insinuating anything about your friend, I took "he is from a foreign country" to mean he was residing in a different country. I read that wrong and based what I said on that incorrect assumption.\

You can message me directly if you would like, any details you can send me beforehand would allow me to prepare for a phone conversation, and would be appreciated.

My email is:

ScottBrown@noble-metalworks.com

I can give you my number when I respond to your email... Or you are more than welcome to message me here.

Scott

Yo dude, it's all about the price today. Keep shopping around. Good luck.

Good luck, Wafflemason.

It seems this world is all about connections and networking. I have a friend who is in the metal fabricating business. It just so happened that his next door neighbor was a local manager of a multinational heavy equipment dealer. They were having problems assembling mining haul truck boxes fast enough for the local demand. (These trucks are so big the boxes come from the factory built in halves. The trucks are also shipped broken down as well.) One thing led to another, and now my friend has had an auxiliary assembly shop and a very large crane set up specifically to do the truck assembly work, and has been doing it, for at least 5 years now, in addition to his core business.

You've got a similar opportunity to make a decent living and, just as importantly, make your friend look like a hero in his company. Talk about win-win!

And you have also been able to gain the consulting assistance of one of the savvy business guys on this forum for help! I'm sure there are also resources here that can help you identify the premium buyers that this scrap can go to.

Keep us posted!

Jon.

My question to the friend would be what was originally in the barrels and have the been tri-purged. I wouldn't want to get stuck with contaminated barrels that no scrap yard will take except for the one 250 miles away that may wind up charging for the disposal.

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Originally Posted by brandon

My question to the friend would be what was originally in the barrels and have the been tri-purged. I wouldn't want to get stuck with contaminated barrels that no scrap yard will take except for the one 250 miles away that may wind up charging for the disposal.

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If the barrels were intended for reuse, they would have to be purged and certified depending on what was contained in them previously.

If they are to be recycled, and they contained some type of hazardous material, then they would have to be processed in a specific way. In the refining business we talk about two types of incineration, one is obvious, the reduction of material to an ash state so values can be recovered. The second, and less known, is a purification process. The barrels would first be shredded and the resulting material incinerated, brought to a temperature below it's melting point but high enough to burn off whatever the containment was, the resulting gases would go through a wet and dry fume scrubbing process which would remove and neutralize the confinements. Here is an example of what I use to scrub my exhaust, it's a catalytic converter that scrubs the exhaust fumes of everything from cyanide to NOx gases.

https://dl.dropboxusercontent.com/u/...202%281%29.JPG

Also, this material would be best sold directly to an industrial processor rather than a scrap yard. Scrap yards are really just an intermediary, a middle man if you will, and would not be equipped as a scrap yard, to process the material. This type of material should be represented by someone that understands not only how it should be processed, but also how it should be negotiated. I have a hard time believing that any processor, foundry, scrap yard would accept the material without the proper information and/or permits, releases or whatever other information was required to comply with Federal and State EPA regulations.

Whatever was contained in the barrels, selling to the proper entity would be the only way to properly conduct any transaction.

Scott

Guys,

Its all well and good to be cautious, but remember, this plant has been producing 1000 tons a month of this scrap for god knows how long. It also has invested in the equipment to crush, bale and load the the barrels and is currently loading them into shipping containers for moving to a purchaser. Nobody is stockpiling a 1000 tons a month of barrels somewhere because they are loaded with poisons. (Could the current scrapyard have supplied the equipment to the plant?)

So a lot of the environmental issues have been looked at and it is known fully how to deal with them, at least at the plant that generates them. I'm sure that anyone who generates a million pounds per month of waste barrels gets lots of free scrutiny by the EPA!! And asked about disposal of wastes, etc.

Also, the mere fact that they are loading sea cans with the product implies that the issues have been dealt with. And I'm not just suggesting its dripping with hoary crap heading for China, where the laws are more lax. I've seen a Chinese gov't inspector in Alberta, Canada, reject a shipping container of insulated copper wire because a couple of cables in the bales were gel-filled phone cables. The key here is that once the product is put in a sea can, it generates demurrage charges if there are things wrong with the shipment. So the waste generator and the company handling the scrap shipments must already have all of this sorted out.

There are just a couple of things that don't add up to me:
1. Container deliveries and pickups that don't happen regularly and are the source of the original problem. This service is not likely performed by the scrap company, but a container moving service. Whats up?
2. Why is the original product moved in drums rather than larger bulk carrying tanks? A little work with a calculator suggests that a staggering number of drums are used every month, and most of the universe that handles those kinds of volumes has migrated to railway tank cars and the like eons ago.

Jon.

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Originally Posted by sawmilleng

Guys,

Its all well and good to be cautious, but remember, this plant has been producing 1000 tons a month of this scrap for god knows how long. It also has invested in the equipment to crush, bale and load the the barrels and is currently loading them into shipping containers for moving to a purchaser. Nobody is stockpiling a 1000 tons a month of barrels somewhere because they are loaded with poisons. (Could the current scrapyard have supplied the equipment to the plant?)

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I believe the OP stated they were compressed barrels, not scrap in barrels. And then being bailed and loaded into containers, there was no mention of sea containers. In the scrap metal industry there are no guarantees about anything. Even though the scrap yards have to be licensed, unless there are formal complaints about toxic spills the EPA does not have enough people to visit each site even once a year, so most operate either on the fringe, or illegally. Same goes for companies that are generating the waste metals. The US is one of the largest suppliers of recyclable metals in the world.

Also the equipment to crush barrels are reasonably inexpensive and fairly well known, I don't believe a scrap yard would be supplying equipment of that nature, it would make no sense.

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Originally Posted by sawmilleng

So a lot of the environmental issues have been looked at and it is known fully how to deal with them, at least at the plant that generates them. I'm sure that anyone who generates a million pounds per month of waste barrels gets lots of free scrutiny by the EPA!! And asked about disposal of wastes, etc.

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There is no guarantee that they are dealing with them properly, and no guarantee that the Federal or State EPA has ever inspected them, or ever will. Like I said above, there are far too many scrap yards, junk yards, industrial operations, heck think of it this way. Anything that is manufactured, and I mean anything, in the US must comply with EPA regulations. It would take an ARMY of EPA inspectors to make sure all were working within the law. The EPA relies on whistle blowers, citizens, compliance companies and even companies that install equipment to notify them of any wrong doing, and only after a complaint has been established does the EPA inspect, and even then, usually, only after several complaints have been made. To install my fume scrubber for example I had to hire an engineer to submit the permits, and then had to hire a company licensed to install the equipment and all this accumulated paperwork goes to the EPA, they just make sure the paperwork is in order, and don't usually inspect, they rely on the engineer and the company that is licensed to install the equipment to ensure it's done properly.

Plus it should be up to each person doing business to make sure they are conducting themselves in a responsible way. I for one rather the government never get involved. I don't rely on government to do anything, let alone insure my safety, or the safety of people that would be affected by a business transaction I was involved in. So while I agree that the toxicity of the material should have already, and probably has been addressed, it's never a good idea to assume anything. Not ever.

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Originally Posted by sawmilleng

Also, the mere fact that they are loading sea cans with the product implies that the issues have been dealt with. And I'm not just suggesting its dripping with hoary crap heading for China, where the laws are more lax. I've seen a Chinese gov't inspector in Alberta, Canada, reject a shipping container of insulated copper wire because a couple of cables in the bales were gel-filled phone cables. The key here is that once the product is put in a sea can, it generates demurrage charges if there are things wrong with the shipment. So the waste generator and the company handling the scrap shipments must already have all of this sorted out.

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The OP didn't say anything about the material being loaded in sea containers, only containers. He did mention that they were having a problem with transportation, but he hasn't clarified if the transportation company is the same as the processing company, or if it was currently going to a scrap yard or where. Usually, when large quantities of this type of material are bid on, and in the bid agreement is usually stipulations about the shipping or removal of the material. It could be a case where the company it's being shipped to, is not able to deal with the quantity, or they have another scrap source that is now overwhelming them, the bottleneck might be at the company that processes, or the company that transports, it isn't clear yet.

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Originally Posted by sawmilleng

There are just a couple of things that don't add up to me:
1. Container deliveries and pickups that don't happen regularly and are the source of the original problem. This service is not likely performed by the scrap company, but a container moving service. Whats up?

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There was nothing stated about container deliveries, only the pickup of the material. And there was no mention about sea containers, only containers which could mean anything. Scrap metal yards often drop off containers that they own, not sea containers, for the scrap metal their customers generate. Then they pick up the containers when they are in the area or the regularly scheduled day, or when the customer calls to let them know they are full. When I owned a grocery store my we bailed all our cardboard, I purchased the bailer and paid for the upkeep. My first contract, before I knew better and because I got a better deal, I agreed to retain the bails on my property until they were in the area to pick them up. Problem was that by the time they showed up, I might have several trucks worth of bails. This became a problem because I had to keep them outside my fenced area, which allowed people with trucks to steal them. So after the year was up, my next contacts I signed required them to pick up once a week, but this also became a problem because if I didn't have x number of bails, then I got less for them and the trucker might show up Friday, then on Monday, then maybe not until the Friday the week following, so then my next contract... You get the picture. It's all in how you form your agreement. If there is no contract, then there is no agreement, and if the company has scrap worth more value to process, they might not pick up the metals until they are able to process them.

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Originally Posted by sawmilleng

2. Why is the original product moved in drums rather than larger bulk carrying tanks? A little work with a calculator suggests that a staggering number of drums are used every month, and most of the universe that handles those kinds of volumes has migrated to railway tank cars and the like eons ago.

Jon.

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The scrap is the barrels, and depending on where they are generating the barrel waste, there is no guarantee that there is a rail head closer than 250 miles away. And even if there is, it also might be that the processor isn't near a rail head. Most industry doesn't have a rail in their backyard or a rail head close by.

Scott