Schnitzer Steel Industries, Inc. History

Company History:

Schnitzer Steel Industries, Inc., operates one of the largest scrap metal recycling businesses in the United States, with processing facilities in Oregon, California, and Washington. Through its Cascade Steel Rolling Mills subsidiary in McMinnville, Oregon, Schnitzer Steel also produces finished products from scrap steel. In 1997, Schnitzer Steel completed the acquisition of Proler International Corp., a major Dallas-based recycler and exporter of scrap metal to foreign markets.

Through joint ventures, Schnitzer Steel also operates 16 self-service auto parts yards in California, Texas, and Nevada, using the unsold car bodies to supply its mill works. Two other joint ventures recover scrap from asbestos removal and old railroad cars. These joint ventures provided the company with 100,000 tons of scrap metal in 1996.

Schnitzer Steel's primary competitors for scrap are LMC Metals, a California-based division of Simsmetal USA Corporation, and the David J. Joseph Company, the largest scrap broker in the country. It competes with the Birmingham Steel Corporation in Seattle, Washington; NUCOR Corporation in Plymouth, Utah; Tamco in Los Angeles; North Star Steel Company in Kingman, Arizona; and Chaparral Steel Company in Midlothian, Texas, in the sale of rebar and other finished products from its Cascade Steel mini-mill.

Schnitzer Steel, which went public in 1993, was part of the Schnitzer family business empire that included the Lasco Shipping Co., the Schnitzer Investment Corporation, and extensive real estate holdings in the Portland, Oregon area. In 1987, Forbes magazine estimated the Schnitzer fortune at $300 million, making the Schnitzers then the wealthiest family in Oregon. Led by the late Harold and Arlene Schnitzer, for whom the Arlene Schnitzer Concert Hall was named, the family also contributed to Portland charitable and civic affairs.

Early History

In 1906, a Polish immigrant, Sam Schnitzer, then 26, began collecting scrap metal in Portland, Oregon. Six years later, he and H.J. Wolfe formed the Alaska Junk Co. and Schnitzer & Wolfe Machinery Co. In the 1940s, Schnitzer started Oregon Steel Mills and Industrial Air Products. The Schnitzer family bought out the Wolfe family in the 1950s, and those related businesses eventually became Schnitzer Industries. At the dedication of a new corporate headquarters building in 1962, Portland newspaper columnist Gerry Pratt described Schnitzer, who died in 1952, as "a brilliant immigrant who began with a sack on his back, a horse and wagon, and whose portrait hangs in the board room of the fine Schnitzer Building."

Despite their success, the family always acknowledged the company's roots. Dr. Leonard Schnitzer, then head of the Woodbury Co., the industrial supply and equipment division of Schnitzer Industries, told Pratt, "Father had a sack on his back. He was junking. There's no doubt about that."

Leonard Schnitzer also noted, "We have been fighting competition for years and the weapons the competitors like to use the most is, 'These guys are junkmen. Why do you want to buy steel from junkmen? Why liquid air from junkmen? Why industrial supplies and machinery from junkmen?' The people who built this business are the customers who got what they paid for and paid for what they got; who knew that when we said something, we would do something."

It was shortly after World War II that the patriarch Schnitzer turned the businesses over to his sons. In addition to Leonard at the Woodbury Co., Manuel Schnitzer, the oldest brother, who had joined his father's junk business in 1928, headed up the Alaska Steel Co., which then handled plumbing supplies and heavy machinery. Morris Schnitzer, who had gone to work for his father in 1932 scrapping old railroad trestles, was president of Schnitzer Steel Products Co., already one of the biggest scrap metal companies on the West Coast with annual revenues of $10 million. Gilbert Schnitzer was president of Industrial Air Products, which manufactured industrial air, medical gases, and welding equipment. A fifth brother, Harold, quit the business in 1950.

The family also managed the Island Equipment Co. on Guam, Schnitzer Steel in Eugene, Oregon, Schnitzer Industries in Europe, Dorenbecher Properties in Portland, and a Japanese trading company in Tokyo. Said Pratt, quoting an unnamed competitor, "They got so many corporations going, they got to call a board meeting to see what they still operate." Leonard Schnitzer became chief executive officer at Schnitzer Steel in 1973 and was named chairman in 1991.

Current Structure

The company's present day organization began developing in the early 1980s, when Schnitzer Steel acquired Cascade Steel Rolling Mills, Inc., in the Portland suburb of McMinnville, which produces steel reinforcing bar (rebar), fence posts, and grape stakes. Cascade Steel, founded in 1968, also included distribution centers in Los Angeles and Union City, California.

Cascade Steel opened a new mill in 1991 that was designed specifically to recycle shredded cars, home appliances, and machine-shop debris, and made Schnitzer the largest steel recycler on the West Coast. Commenting on the mill's computerized controls, Mort Michelson, then Cascade Steel plant manager, told The Oregonian, "Old time mills didn't come close to our efficiency. There used to be a lot of guesswork involved--the color of the molten steel, the amount of time in the furnace. If you made your chemistry, great. If you didn't, you just threw the steel away or used it in some no-grade product."

In 1989, Schnitzer also sold Metra Steel, its distribution division, to Joseph T. Ryerson & Son, Inc., a Chicago subsidiary of Inland Steel Industries, Inc., to focus on recycling.

After more than 80 years as a privately owned business, Schnitzer Steel Industries announced in 1993 that the business would issue an initial public offering of 2.75 million shares of Class A common stock to retire more than $42 million in debt.

Less than two years earlier, Leonard Schnitzer had told the industry magazine Recycling Today that the family was committed to keeping the company private. But there was speculation by The Oregonian that the ultimate decision to go public was the first step in restructuring the ownership "of (the Schnitzers') vast empire to avoid disruption as one generation supplants another." The newspaper noted, "The surviving sons of founder Sam Schnitzer, though still involved in business, are past retirement age. And members of the following generation of Schnitzers are increasingly less involved in company affairs."

Even with the public offering, however, the Schnitzer family remained firmly in charge, controlling 95 percent of the voting shares of stock. In 1997, several key executive positions also continued to be held by family members, including Leonard Schnitzer, chairman; Robert Philips, Leonard Schnitzer's son-in-law, president; Kenneth Novack, Gilbert Schnitzer's son-in-law, executive vice-president and president of Schnitzer Investment Corp.; Gary Schnitzer, Gilbert Schnitzer's son, executive vice-president; and Dori Schnitzer, daughter of Morris Schnitzer, secretary.

Expansion in the 1990s

Late in 1993, the newly public Schnitzer Steel also acquired Sessler Inc., a Eugene-based competitor in recycling scrap metal. The $5 million purchase united the families of two old-time scrap dealers, Sam Schnitzer and Milt Sessler, who started the original Sessler Inc. in Klamath Falls, Oregon, in 1932. Sessler sold the company in 1960, but his son, Ray Sessler, later started another business with the same name in Eugene. Over the next two years, Schnitzer Steel spent $2 million to upgrade Sessler operations and double the amount of scrap metal the plant could process to 90,000 tons of steel annually.

Schnitzer Steel expanded again in 1994, this time acquiring Manufacturing Management Inc., the largest scrap metal recycler in Washington with deep-water facilities at Tacoma, for $66 million. The acquisition boosted the amount of scrap metal processed by Schnitzer Steel from one million to 1.5 million tons annually. Schnitzer later sold a nonferrous processing center that Manufacturing Management had operated in Portland. Schnitzer Steel also began a $42 million expansion at its Cascade Steel Rolling Mill to increase its capacity for finished products by 60 percent. The Portland Business Journal noted that the acquisitions were "an indication of the aggressiveness of the younger generation of the Schnitzer clan. The conservative and low-profile generation that succeeded founder Sam Schnitzer has been replaced by a more aggressive crop of business people." That year, the company reported record revenues of $261.7 million.

In 1996, Schnitzer Steel launched efforts to acquire Proler International Corporation, a scrap metal dealer about twice its size in Houston, Texas. Proler, founded by Israel Proler, a Russian immigrant, went public in 1971. It ran into financial trouble in the early 1990s, losing more than $9 million in 1993 and again in 1995. The losses stemmed, in part, from efforts to build a high-tech plant in Coolidge, Arizona, to recycle copper from old computers.

Schnitzer Steel originally offered $35 million for the company, but was forced to up the price to $42.3 million when the Hugo Neu Corporation, a New Jersey-based scrap metal recycler, made a counteroffer. Hugo Neu operated three deep-water export facilities in a joint venture with Proler and, during a bidding war for the company, filed a lawsuit to stop the release of confidential information. A spokesman for Hugo Neu told The Oregonian, "We are concerned that our partnership arrangement with Proler for over 30 years has been abrogated. We are very disturbed this happened." Hugo Neu also criticized Schnitzer Steel's management style and asked for $50 million in damages.

Hugo Neu eventually withdrew the lawsuit after negotiating a confidentiality agreement with Proler and Schnitzer Steel. Hugo Neu also expressed its willingness to continue the joint ventures, which included export facilities in Everett, Massachusetts; Jersey City, New Jersey; and Los Angeles, after the purchase was completed in 1997.

The acquisition gave Schnitzer Steel, which had focused primarily on the domestic market, annual exports of 2.1 million tons--an estimated one-third of the export market for processed scrap steel in an industry of predominantly small, family-owned businesses. Robert Philip, then president of Schnitzer Steel, told Purchasing magazine, "This combination of our talents and operations will benefit not only both of the companies, but the scrap industry as well."

In its 1996 annual report, Schnitzer Steel said its business strategy was to continue expanding its scrap operations through acquisitions and joint ventures and increase finished steel production and broaden its product mix. Philip told Recycling Today in 1994, "There aren't too many companies that are fully integrated from cradle to grave, so to speak." Characterizing Schnitzer Steel as a true recycler, he noted, "We start with (scrap) automobiles at one end of the pipeline and steel rebar, flat bar and structural steel come out the other."

The company also noted that only about five percent of all raw steel in the United States came from recycled scrap metal in the 1950s. But in the late 1990s, that had increased to 40 percent.

Developing nations without scrap metal supplies of their own, especially Pacific Rim countries, were also eager to purchase processed scrap. Schnitzer Steel, which had scrap customers in China, India, Japan, Korea, Taiwan, and Thailand, believed its West Coast base, with deep-water export facilities at Tacoma, Portland, and Los Angeles, gave it a competitive advantage in this market.

Net income for the company more than doubled from $10.7 million in 1994, on sales of $261.7 million, to $22.2 million, on sales of $330.7 million. Although sales increased to $339.3 million in 1996, net income dipped slightly to $20.8 million. The company pointed to economic slowdowns abroad and a surplus of steel in the United States, which drove down market price for processed scrap.

Principal Subsidiaries: Cascade Steel Rolling Mills, Inc.; Manufacturing Management, Inc.; Sessler, Inc.; Proler International Corp.

Further Reading:

• Blackmun, Maya, "Schnitzer Steel Industries To Go Public," The Oregonian, September 30, 1993, p. E16.
• Bruening, John C., "Building on a Scrap Foundation," Recycling Today, November 16, 1992.
• Buri, Sherri, "Testing Their Mettle: Schnitzer Steel Goes After the Growing Scrap Market," The Register-Guard, March 12, 1996, p. 1B.
• Foyston, John B., "McMinnville: It's Now a Steel Town," The Oregonian, November 14, 1991, p. 1.
• Hamburg, Ken, "Schnitzer Acquires Scrap Metal Recycler," The Oregonian, December 2, 1993, p. D18.
• Leeson, Fred, "Schnitzer Seals Deal To Acquire Proler," The Oregonian, December 3, 1996, p. C1.
• Mayes, Steve, "Schnitzer Steel: Testing Their Metal," The Oregonian, October 15, 1993, p. D1.
• Pratt, Gerry, "Peddler Operation Grows into Millions," The Oregonian, October 13, 1962, p. III-9.

Source: International Directory of Company Histories, Vol. 19. St. James Press, 1998.

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