Local scrap yard operators say falling commodity prices and a cooling Chinese economy are taking a toll on earnings, causing them to trim operations and cut staff.

“After commodity prices dropped, everything I owned was worthless,” said Nathan Adlen, owner of South L.A. scrap yard Samson Auto Salvage. “Everything I paid based on the commodities price fell in value.”

Adlen said he used to buy 100 cars a day to stock his Sun Valley facility, which has closed. Now he can afford to purchase no more than 100 a week for the South L.A. yard.

When China’s economy was booming a few years ago, scrap metal operators counted on that country as a major buyer. Ships that brought products from China went back carrying American refuse: scrap metal and used electronics that would be recycled and converted into new products that were shipped back here.

But a strong dollar and China’s economic slowdown have made scrap metal too pricey for Chinese buyers to bring in from overseas. Containers that used to carry scrap metal and recyclables to China are increasingly heading back to Asia empty.

Kimberly Ritter-Martinez, an economist at the Los Angeles County Economic Development Corp., said commodity prices have plummeted over the last few years as China refocused its economy to be less dependent on exports and more focused on consumer goods.

“The transition is disruptive, which is why we see the slowdown,” she said. “If you’re a scrap yard selling recyclables to China, that’s going to impact your business. When your primary customer stops buying your product, your business might face a hardship.”

The consequences can be daunting, she said, from laying off workers to closing down scrap yards.

Declining figures

Adlen has done both.

He closed one of two operations in January as a result of the decline in business, a 26-acre site in Sun Valley that had been in his family for more than 50 years. He blames new environmental requirements, taxes, and mandatory health insurance for his employees through the Affordable Care Act. All of which hit as commodity prices were falling.

His operation suffered as the price of scrap steel has dropped to $203 a ton from $400 a ton in 2014, according to Recycling Product News.

The value of U.S. scrap metal exports has dropped by 36 percent since it peaked at $33 billion in 2011, according to the U.S. Department of Commerce.

California, a big contributor to that tally, has been hit hard. About 5.7 million tons of ferrous metals were exported through the state’s ports in 2014, the most recent period for which data are available, a 9 percent decline from the previous year. During the same period, California shipped away 1.3 million tons of nonferrous metals, a 11 percent decline compared with the previous year, according to data from the state’s recycling and recovery department.

“I didn’t see the auto wrecking industry becoming more profitable,” Adlen said of the decision to shutter the larger location.

Now, he operates just the smaller 4-acre yard in South Los Angeles, where he employs 22 people. The yard buys vehicles from police garages, charities, and auctions and tears them apart to extract platinum, copper, lead, iron, and aluminum. He used to pay $450 a car but now only budgets for $150. 

“It takes a little while to buy material for a cheaper price because customers got used to the old prices and are resistant to sell them at a lower price,” he added.

Adlen is far from alone.

David Thornburg, consultant for SA Recycling of Anaheim, one of the largest metal scrap yards in the region, said the firm, which had operated facilities at both the ports of Long Beach and Los Angeles, has pared back significantly.

“We’re not exporting from the Port of Long Beach,” he said of the cuts, which came in 2014. “The amount of metal exported from both ports is not at the level to support two facilities.”

The decline in demand for scrap metal – and other recyclables, such as plastics and paper products – has contributed to a steady increase in the number of containers heading back to Asia empty from the local ports.

The ports of Los Angeles and Long Beach shipped more than 4.3 million empty containers last year, a 16 percent increase from the 3.7 million sent back in 2014.

At the same time, the scrap industry has cut nearly 11,000 jobs nationwide in the last year, according to the Institute of Scrap Recycling Industries.

Viable business

Despite the struggles, scrap metal businesses persist. There are 272 scrap yards in Los Angeles County that employ 3,694 people with an average weekly wage of $900, according to LAEDC.  

Jeff Farano, an attorney for SA Recycling, said the company used to buy small junkyards to expand facilities. But with scrap prices in decline, that effort has been put on hold.

“The metal volume is 50 percent of what it used to be a few years ago,” he said. “We have a lot of scrap and can’t afford to get rid of it. We’ll wait until prices go back to normal.”