China's boom being felt by local recycling firms.

It's boom times in the scrap metal industry, thanks to insatiable demand from the expanding Chinese economy.

But no one needs to tell Louis Omellis.

The La Habra metal dealer knows as much from the kind of competition he's facing: an assortment of inexperienced small-time operators looking to make a quick buck in an overheated market.

"The good part is that the prices are great," said Ornellis, owner of Unicorn Metal. "But you have people who used to own printing shops who all of a sudden want to become scrap metal dealers."

The market is seeing one of its greatest booms, especially on the West Coast with its close proximity to Pacific Rim countries. Across the world, prices for steel, iron, aluminum and other metals have skyrocketed, largely due to the demand from the growing Chinese economy.

Even with more competition, the larger West Coast operations are buying new equipment and hiring more employees to accommodate the Chinese demand. "They are basically building a rail grid and interstate highway system all over the country," said economist Donald Straszheim of Straszheim Global Advisors, a business consulting firm that focuses on China. "That takes lots of iron and steel and aggregate."

The market is largely made up of neighborhood recycling centers that accept an assortment of metal scrap from residential and commercial sources and then resell it to larger dealers. Those larger dealers, who sometimes compete directly with the recycling centers, ship the scrap metal overseas.

George Adams Jr. is an owner of Adams Steel, one of the largest dealers of steel scrap in Southern California. Last year, the family-owned company topped $100 million in revenues for the first time, prompting Adams to buy two new machines that shred automobiles into steel and other scrap. It cost $10 million to purchase and install the one that's now at its Anaheim headquarters.

"I put in bigger equipment and probably had a 10 to 15 percent increase in employment," said Adams. "Our business has always been cyclical but certainly the markets this past year were much higher than they have ever been."

Adams is shipping steel scrap to Chinese mills for $285 to $300 per ton, where it is used to produce new steel. That's more than double the $120 to $140 price three years ago, before demand took off.

Last year, Chinese mills produced 268 million tons of steel, about 25 percent of the world's production, and a huge jump from 1989 when it produced 60 million tons, or 8 percent of world production.

"They need all kinds of metals. They can take scrap and melt it and turn it into product," said Lloyd O'Carroll, an analyst with BB&T Capital Markets who tracks the metals industry.

Alan Alpert, owner Alpert & Alpert Iron & Metal in Los Angeles, one of the region's largest dealers of non-ferrous metals, says that copper prices doubled over the last two years to $1.40 a pound from 70 cents. The company, whose annual revenues exceed $350 million, ships directly to mills in China. Last year, he opened a yard in Long Beach and added employees to keep up with the business.

"They have state-of-the-art facilities that in many ways can compete with anybody in the world," said Alpert, whose company has shipped scrap to China for nearly 20 years. He said he has never seen demand like this.

But large dealers like Adams and Alpert must pay more for their scrap from suppliers. That has limited margins. However, revenues have doubled and tripled in some cases.

Smaller dealers such as Omellis say they have little option but to sell to larger dealers, while also competing against them for the raw scrap. "The big boys can afford to pay very top dollar and eliminate the middlemen like me and there goes your margin," Ornellis said. "And they got the connection in China and can sell direct."

Ornellis says he also faces competition from the mom-and-pops who swoop in and out of the business, depending on market conditions. These operators rent shipping containers that they drop off at the sites of commercial customers.

Customers are paid cash for the load, which the mom-and-pops have shipped overseas. With steel prices the way they are, Ornellis said this can net an operator $2,000 a container. "This guy can do that with no overhead," said Omellis, who employs about a dozen people.

High prices tend to generate more competition and more scrap. Even so, there are rumblings in the steel industry about a possible shortage of scrap for U.S. steel mini-mills, which are the largest domestic consumers of scrap.

Last year, mini-mill operators asked the U.S. Department of Commerce to limit scrap exports--the kind of move that could create a huge bust in the market. O'Carroll said that despite the talk, there is not a real shortage yet. "Certainly it's a theoretical possibility," he said.