An analyst cautioned that shredding overcapacity could force scrap metal companies to pay more for materials and in turn cut into their profits.

Mr Cannacord's Eric Prouty said that US shredding capacity increased significantly after scrap prices and supply jumped in 2007 and 2008, but the supply of metals has tapered off in recent years and the owners of those shredders are being forced to bid more aggressively for the materials in order to keep their machines running.

He said that "In this hyper competitive environment, generating sufficient volumes has become the topmost concern for some operators, often superseding margins/profits as primary business decision drivers.”

Mr Prouty said that West Coast Recycling appears to be encroaching on the Northern California territory of both Schnitzer and Sims Metal Management Ltd.

Mr Prouty said that "It's too early to say what competitive impact West Coast Recycling might have on scrap availability in Northern California, but again, this issue of shredding overcapacity isn't likely to go away anytime soon and is an industry issue definitely worth watching.”

The analyst pointed to Schnitzer Steel Industries Inc noting that while the company recently said it hasn't had any problems with overcapacity, privately held West Coast Recycling Group plans to build a shredder not far from Schnitzer's metals recycling facility in Sacramento.

(Sourced from AP)