Scrap Depot profitable?

Hi everyone, i'm new to scrapping and right now i'm extremely ambivalent over something which I was hoping you could help me out with. I apologize in advance for the wall of text so i'll try to keep it to the facts.

My situation is this: a good friend of mine and his brother have a building in the semi-industrial district (Fremont, WA; the area is technically considered industrial by the zoning limits but a major street runs though) where he is hoping to open a scrap yard. He was hoping that I would invest in the company in exchange for becoming a partner. He is looking for approximately 25k investment for everything including: machinery, scales, licenses, minor renovations, etc.

The plan is to setup where people can bring in their scrap metal, ferrous and non-ferrous, and put them into sorted bins. We pay the people cash (up to $30 a time which is the state limit) or write them a check if it's more. We then empty the bins into a large truck (truck holds roughly 5 tons) and take them down the hub recycling depot by the pier once it's full.

We will be working in collaboration with these people as one of their suppliers. They pay us a slightly better rate per lb of metal than if we weren't associated with them, but the margin is only slightly better.

The idea is to have at least a truck a day, but I'm not quite certain that will happen. The incentive for people to come to us is because we're very local whereas the big hubs that ship overseas are located pretty far away.

The question I have is if anyone knows people who do this and how well they do profit wise? I'm very stressed out because I would be investing a good amount of money and would essentially be taking a pretty big risk here.

The first thing I'd be looking at is how much competition there is in the immediate area, and whether you'd be able to match, or beat, what they pay.

My assumption, from what you've said, is that the "big hubs" would be paying you a higher rate, based on the volume you could bring in--that if Joe Scrapper drove his pickup load down there himself, he'd still be getting around the same rate you'd be paying closer to home. Is that correct?

Also, it seems to me that a 5-ton truck/day isn't really that much volume. How much margin, per ton, do you expect to get?

(Disclaimer: I ain't got no MBA...)

Find a better buyer. But will there be a profit? Yes I feel there will be but you will have to think smart an work smart as well.

I run my own yard down here an there are some items I only make 2cents on but I am taking in a huge amount of it...so I do make out ok with it. Its all about how much you are taking in at the time. After you sell to any one yard for a time you can ask for better pricing as you been dealing with them for X months an with X amount of scrap.

I could help in setting it all up but I am a bit far from you (I am in dallas) but if I was you...I would.

If the yard was paying (just making numbers up as I go here) but 10cents a pound on steel...offer people like 8cents so they don't have to drive all the way there an spend all the fuel...but if they have X amount of pounds (if someone came in with 1,000 or so pounds) pay them or offer to pay them 9 or even the 10cents an sell it for the 13 cents (3cents profit)

Alot of people will go to a place that is closer to them if they dont have to drive a long way to drop steel off (gas is not cheep an they don't have the big huge trailers an what not to make it worth wild to do so) so having a yard closer to them could be a good deal.

Maybe put signs up around town to see how much scrap you can get in a week/day?

Another side note...why truck it...do you have a rail road close to you? could be better to have a rail cart or two dropped off to be loaded an sent over the rail...its cheaper.


Sorry for the long post....

Thanks for all the responses. The good news is that the area i'm in-- Fremont (basically a pretty heavily populated part of Seattle)-- has only 1 other "recycling" depot that takes everything except steel. I've checked them out and they're constantly busy however their operation is very small and they pretty much rip people off since they're really the only people in the greater Seattle area They won't give me any numbers but I would assume they're doing okay based on the amount of traffic they receive.

The big hub i'm talking about is called Calbag and it's located in Tacoma, WA which is about 1.5 hours or so down South so it's not really worth driving down for small loads. If you happen to live in Tacoma then it's probably worth it but a lot of people don't since Seattle is a bigger city. They are essentially on the pier though and very close to a railroad so they directly ship out to places like China and India. Unfortunately there are no railroads close to my area so we'd have to truck it.

I agree scaling the price based on the amount brought it would be the smartest choice since it would give people more incentive to bring more, but i'm not sure where I would find the daily prices of steel, copper, alum, etc. I would assume there's some place on the internet with the prices, but I need them to be in "price-per-pound" so I would know what to pay out. If I just look at the commodities on Wall Street and it says "copper is up x points" that doesn't mean a whole lot to me since I can't really do anything with that information.

The truck being able to carry 5 tons is actually a rough estimate and a poor one at that. I'm thinking the number might actually be close to 10-12 tons since it's one of those big construction trucks that was previously used to haul metal. I'm thinking we would have to contract out for truck drivers since we cannot spare anyone even for a couple hours. The idea is to deal both in bulk (unprepared steel that we would crush down using an excavator) and non-ferrous which would have to be separated before bringing it to us.

About the advertisement, we're thinking of posting flyers and Craigslist but word of mouth will inevitably play a large role. Thankfully the two brothers i'm working with are ex-contractors so they may still have some ties to spread the word. I can't really think of anything else so if you guys have any suggestions they would be greatly appreciated.

I'm just really nervous about spending the money since I lost my job a while back and this is a very large chunk of my money. I believe it's a great opportunity which is why I agreed, but it's a gamble. I don't know if people would come in at all and if we'd be able to make enough money considering we're literally being paid pennies here and the margin isn't that high. Regardless I think that it's an untapped market (for the most part) and i'm willing to do whatever it takes to make it.

you should base your price on what the other yard is paying you. The yards in my area change there price for steel(if it changes) at the start of every month. From what i know all they do is buy your steel, cut it up to a certain size which makes it #1 prepared steel and sell it to another yard closer to a shipping hub for a higher [price in very large quantities(huge dumpster on a tractor trailer) i would guess its atleast 25 tons? one of the yards i go to sometimes has whats called a shredder? i dont know if all of them have this but they advertise it makes cars into baseball size pieces...

There is also one scrapper i know that buys large amounts of scrap (sometimes at auctions) from people mostly around half price sometimes near the full price we would typically get and does the same thing hauls it away then cuts it up on his own property then loads his tractor trailer that he owns and he gets a higher rate from a scrapyard then normal. Might be a good idea to start small like that instead of it being an all or nothing deal and just advertise as best as you can that you buy and haul scrap once business picks up you can try opening the yard to the public. plus i dont think you would need any kind of special liscense.

I dont know what they pay in your area but #1 prepared steel around here is about $2 more per 100 lbs then unprepared steel is if u get in good with a large yard im not sure but gonna guess u could get around $4 per 100 more then your buying it for. If you haul 12 tons every day if my math is right thats 960$ a day for all your steel.... not much with the cost of gas and all your equipment. I personally think your better off starting small buying stuff around half what the other yard pays with the truck you have a good trailer for hauling junk heavy equipment some cutting torches, and maybe some equipment to help load or unload into your truck.

http://www.firstamericancore.com/
http://www.scrapmonster.com/
http://www.metalprices.com/
Here's a couple of places to start your homework, the other option would be to sell some different metals to the other yard (your competition) and there would be your starting prices. Wouldn't have to be a lot, just enough variety to to see their different prices. Just my opinion,,,