Louay Kalascho, owner and president of the San Diego-headquartered Iron Mountain Metals runs recycling yards in California and in Tijuana and Mazatlan, Mexico. He sat down with Davis Index recently to give insights on the recycling industry in northwestern Mexico and why his company opted to expand to that region.
Expanding to Mexico
According to Kalascho, the opportunities for scrap trade in Mexico are vast once you get over the licensing and regulatory hurdles, due to the region’s access to both Mexican and US scrap feedstocks. “Regulations in California made it cost-prohibitive for our business because of which, we opted to expand operations in Mexico,” he said.
Mexico, he observed, provided a good alternative to doing business since he limited California sites to shipping and receiving due to the increased cost of processing scrap in the Golden State.
To expand its operations in Mexico, the company obtained an E-Mex program license that allows Iron Mountain to purchase full vehicle bodies as well as ferrous and non-ferrous loads throughout southern California and transport them south of the border for processing.
The E-Mex license requires that a minimum of 90pc of all processed materials imported is shipped out of the country. Metals are exported back to the US, Asia, or purchased by Mexican entities. Mexican companies in need of the raw materials, especially, mills, satisfy this requirement by calling for loads to be transported across the border to the US, obtain certification, and return it for use within the Mexican border.
Mexico also has wage advantages, Kalascho noted, along with a solid, loyal workforce. “In our company, I take the approach of paying our team wages that are above the local standards so that employees share in the company’s advancement to form a long-lasting relationship as we are a family business,” he said. Additional security to minimize asset management losses is higher in Mexico versus the US.
An emerging market
“In Mazatlan, our company is the only one with the necessary permits and structure to take advantage of the growing car dismantling market,” Kalascho said. He added that ferrous and non-ferrous raw materials produced from the site had the potential to expand drastically in the next few years as Mexico is working on environmental policies to scrap polluting vehicles and facilitate the scrapping process.
Iron Metals’ Tijuana plant produces aluminum ingots and processes auto dismantling to further break down components such as electric motors and radiators. The company also processes non-ferrous materials such as copper, bronze, and other rare metals at this facility.
Kalascho added that Mexico is an emerging market for end inventories for scrap feedstock. This business has great potential if it is facilitated by good logistics and support systems to receive feedstock from peddlers and smaller processors—an area where Iron Metals has made a breakthrough. “I develop strong relationships with downstream sources of ferrous and non-ferrous suppliers, including facilitating necessary equipment, which in turn cements our relationship and the continued availability of high-quality feedstock into our operations,” he said, noting that Iron Mountain could rapidly scale up sourcing operations as the demand for metals recovers.
Kalascho admitted being negatively affected by the COVID-19 pandemic like all other businesses worldwide. Unlike other countries, scrap yards were not designated as essential in Mexico because of which Iron Metals’ Mexico operations were closed for almost two months.
“The reduction in the workforce upon return to work was certainly a result of the drop in revenues but was also a necessity due to the social distancing protocols in the sorting process,” Kalascho said. The pandemic also impacted transportation between the US and Mexico with loads dwindling from 3-4 times daily to 3-4 loads weekly into summer. However, transportation between the borders is slowly returning to normal in Q3 2020, according to Kalascho.
The company presently transports metals to customers via truck, rail, and ocean-going shipping containers. For containerized metals, Iron Mountain has facilities to ship from Ensenada, Mazatlan, and Los Angeles ports.
In 2021, Iron Mountain plans to sell more scrap via containers to the Asian markets. “We are a reputable company and are actively seeking partnerships with trustworthy dealers and end-users for long-term raw materials supplies,” Kalascho said, adding that the firm is learning more about ISRI specifications and melting requirements to improve service and meet quality standards systematically.