The price is wrong: that's the complaint often heard regarding published scrap prices. Is the new RMDAS methodology an improvement?

Establishing average pricing for recent scrap metal transactions is an often thankless task that has traditionally been tackled by trade publications such as American Metal Market, New York, or other metals industry publications.

The averages and price lists formulated by these publications have been widely used for decades (and, in fact, two such price averages are presented in chart format in this publication), but that does not mean that the relationship between traders and these publications is always harmonious.

Traders are at times suspicious as to the accuracy of the prices, either fearing that the publications are not collecting enough information or, even more worrisome, are being mislead by providers of information with a stake in the market.

The unhappiness with these price surveys and the notion that a more empirical way to gather information can be established has become an opportunity that Dr. Alfred Kuehn and Management Science Associates Inc. (MSA), Pittsburgh, have pursued.

PROOF OF PURCHASE. Kuehn and MSA have become collectors, interpreters and providers of information to several business sectors in the United States, including cigarette makers, cable television stations, candy makers and magazine publishers.

But for the company to establish its presence in those markets has always required one important thing: access to sales information. MSA's establishment of the Raw Material Data Aggregation Service (RMDAS) for steelmakers has included that same requirement. MSA is working with growing numbers of electric arc furnace (EAF) steelmakers to obtain transaction-specific information on their ferrous scrap purchases.

According to Patrick J. Gallagher, vice president of the Metals and Advanced Manufacturing Division of MSA, participants pledge that this information is accurate and verifiable and risk running afoul of Sarbanes-Oxley requirements if it is not. "The majority of our information is transmitted to us electronically and is tied in to the purchasing and accounting systems of our clients," notes Gallagher. "If it comes from their accounting systems, they know, because of Sarbanes-Oxley, the penalties can be great if they play games with the data."

Such auditable reporting requirements help to establish accuracy. Also, the growing percentage of steel mills participating ensures that the averages obtained have the volume behind them to be legitimate.

The RMDAS effort started with the participation of several mills that, combined, represented perhaps one-third of the EAF steelmaking segment. But now, Kuehn says, the combined capacity of the mills participating amounts to some 75 percent of the steel produced in the United States via the EAF method (17 steel companies operating 59 mills, according to MSA).

To a statistician such as Kuehn, who is the founder and chairman of MSA, there is a significant difference between this methodology and telephone survey techniques that can be far from transparent. "When you have what amounts to a census with tremendous detail, that is a lot more informative than someone from a magazine asking, 'How do you feel about the direction of the market?"

DATA MINING. MSA has not established the RMDAS network simply to prove it can produce accurate information, the company's leaders are quick to point out.

MSA sees several ways in which its information can help steelmakers judge their purchasing performance, control their costs and mine the data for additional helpful information.

There have already proven to be a number of ways in which careful looks at individual transactions or a series of transactions can reveal something that can affect scrap purchasing decisions.

Gallagher notes that when some mill companies expressed concern that their scrap purchasing departments were overpaying for shredded scrap, what they learned from their purchasers and melt managers was that they were paying a premium for low-copper shred, often after it had been run through a newly developed bulk scrap analyzing machine.

Subsequently, RMDAS has been working with its EAF client base to identify its shred purchases as to whether they are buying a low-residual copper No. 1 shred or a higher-residual No. 2 Shred.

"That's just an indicator of how this system can accurately look at performance levels on the buy side for our current customers, and I'm certain on the sell side for prospective scrap customers," says Gallagher.

AUCTION ACTION

Management Science Associates Inc. (MSA), Pittsburgh, worked its way into the metals sector with its purchase of www.ScrapSite.com.

At the same time its RMDAS efforts have been gaining attention on the ferrous scrap and steelmaking side of the industry, ScrapSite has remained focused on serving as a host site for scrap metal online auctions.

A listing of auctions scheduled or underway on one day in February included sellers offering shipments of the Zorba post-shredded nonferrous grade, electric motors, aluminum wheels and mixed copper bales.

Several large scrap companies, including OmniSource Corp., Fort Wayne, Ind.: Gatamba Metals Group. Kansas City, Mo: and Tennessee Valley Recycling, Decatur. Ala. were among those offering products through the auction format.

Ralph Pinkert, senior vice president of MSA ScrapSite, says activity on the site has grown quietly and steadily "it has proven to be an efficient, effective tool for companies to market their scrap at or above the market [pricing] at any given time," he comments

MSA V.P. of the Metals and Advanced Manufacturing Division Patrick J. Gallagher estimates that some 75 percent of the buyers are overseas or represent an overseas consuming destination.

The author is editor of Recycling Today and can be reached at [e-mail].