Master a recipe for a cake and you're not apt to alter the ingredients too much for fear of messing up your sumptuous treat. Not so when you're an electric arc furnace (EAF) mini-mill cooking up a viable formula to transform common scrap materials into steel. These manufacturers rely on a varied diet of old appliances, obsolete equipment and shredded automobile parts (in others words, common scrap) to concoct steel products that meet the varied demands of their customers. Modifying the makeup to reduce costs or produce a higher-quality product is an exercise that comes with the territory.

"We know what the cake is going to look like, but we're always tinkering with the ingredients," says Rich Brady, manager of ferrous resources and logistics for Steel Dynamics Inc. (Ft. Wayne, IN), a $2.1 billion mini-mill steel producer. "We are always trying to determine what the scrap mix will be, trying to find one that will constitute the least amount of cost, but yet keep us within the parameters of the grade that our customers require."

Until recently, most EAF mills went about the business of comparing and purchasing scrap without a whole lot of solid pricing data or market intelligence to back up their choices. With over 3,000 dealers in the country -- from multimillion dollar public companies to mom and pop shops -- hawking scrap materials, all at different grades and with varying consistencies, keeping a handle on pricing has been no easy feat. Given that scrap purchases typically account for about 60% of an EAF maker's cost of finished goods, and still a relatively sizeable 20% to 25% chunk of an integrated steel maker's investment, the lack of a reliable pricing index has created a significant void.

FILLING THE VOID

Management Science Associates Inc. (Pittsburgh) is aiming to fill the gap with Raw Material Data Aggregation Service (RMDAS), a pricing service it claims will arm scrap metals industry participants with much-needed information. Through contracts with leading steel companies, RMDAS collects and aggregates pricing and volume information on ferrous scrap materials, giving those same member companies a more accurate and timely picture with which to track pricing and, at the same time, allowing them to measure and analyze their own buying performance.

Pre-RMDAS, steel manufacturers could get their hands on such comparative pricing information only anecdotally or through less scientific survey data compiled by a handful of industry trade magazines doing monthly polling. Not having accurate and up-to-date information has been a real disadvantage to EAF mills, particularly those looking to alter their recipes on an on-going basis to maintain a competitive edge.

"Scrap buying is a vital piece of the puzzle -- anything that represents 60% to 65% of the cost of the end product has to be considered a key element," says Brady. "The more accurate information we have about price, the more informed we are, the better decisions we're able to make, and the more clarity comes to the process."

MSA is selling decision-making tools to the mini-mill steel community, an idea that's beginning to resonate. Since RMDAS' debut early last year, MSA has signed up 14 steel companies, operating 53 production locations throughout North America and representing over 55% of the total scrap bought and consumed in the United States each month (estimated at more than 2.8 million tons), according to company officials.

The participants furnish their actual purchase order data for scrap materials. In return, MSA employs its own data repository technology to cleanse and aggregate the data, and then whip it into a variety of analytical reports that can help companies improve the way they buy scrap. For example, using RMDAS scrap, buyers can spot pricing trends, recognize cost-favorable sourcing opportunities in other regions, and leverage the collective intelligence to negotiate better pricing with scrap suppliers, along with many other opportunities that allow them to make the most of their scrap sourcing.

"We're trying to help them answer questions, such as are they buying scrap at fair market prices, did they pay more for scrap because of true demand or did they not do a good enough job of finding market intelligence to help negotiate pricing?" explains Pat Gallagher, vice president of metals and advanced manufacturing development for MSA. "We're trying to help them benchmark themselves in terms of an extremely important raw materials cost -- one that goes right to the bottom line."