Davis Index sets up scrap metal recyclers for success
Whether you are a scrapyard, a manufacturer, or a mill, you need accurate scrap metal pricing in order to make the most informed deals. When you can maintain financial success in the scrap metal recycling industry, the entire recycling industry is more sustainable. There are publications that provide price reporting, but how exact are they? Where and how do they get their data? Is the cost of access a barrier to the information?
Providing the scrap metal recycling industry with transparent, accurate information in order to benefit the entire recycling industry is the objective of the Davis Index and its founder and CEO, Sean Davidson.
"My focus is the sustainability of our industry," Davidson says. "Because if our industry is sustainable and its stakeholders can find margin and be profitable, then it's good for the overall sustainability conversation. I'm laser focused on that. I feel like our industry has been ignored for too long - by technology companies, and even by price supporting agencies."
Entering the scrap scene
Prior to launching the Davis Index in February 2020, Sean Davidson had been in the price reporting agency space for more than a decade with a background in tech through investments, advising start-ups, and his own start-ups. When he left it all behind in 2019, he was approached by stakeholders in the scrap metal recycling industry who asked if he could provide some kind of weekly newsletter with up-to-date pricing information on seaboard markets, especially imports and exports, and some of the domestic markets in the United States.
"I realized there was an opportunity here," he says. "There was an opportunity to merge my three loves: technology, the recycling industry, and journalism. You know, price reporting. And we got to talking about it and then I started getting really excited about it. Then once the excitement kicked in, the train had left the station."
Davidson and his team spent most of 2019 building the software for scrap metal price indexation. Now the Davis Index has offices worldwide with its headquarters in Toronto. It produces ferrous and non-ferrous pricing indexes for scrap dealers, OEMs, consumers, and brokers.
Combining affordability and accuracy
Davidson had three goals when developing the scrap metal price index. The first was to make it affordable. For too long the existing solutions have been too expensive and independent traders and businesses, smaller foundries, and smaller furnaces were priced out. He says, "They just don't pay for [existing solutions] anymore because they just choose not to take on the big cost."
The second goal was to improve the technology. "The technology was just absolute garbage. The value of the customization, it was not mobile friendly. In fact, a lot of them don't even have native mobile apps. It's stuff that was built 20 years ago," Davidson says.
The final goal was to make sure the Davis Index was accurate. The indexing process is based on surveys of market participants such as producers, consumers, traders, and brokers. The data is used only after factoring in the credibility of the source, the accuracy of the information, and the source's role and reputation. The data must also meet specific methodology criteria including industry specifications for each material, a minimum deal size, delivery period, payment period, and other factors. Davidson adds, "Now our scrap industry has the leading piece of software technology for the entire price reporting world. Across any commodity. And we're constantly improving it."
Easy access to global markets
According to Davidson, the primary need the Davis Index platform satisfies is access to the major scrap metal markets across the globe. Technology drives this access whether it is through application programming interface (API) calls, PDF reports, customized web apps, or simply reaching out with a mobile phone. The subscription cost of the index is priced to promote access for small and large companies. A fixed price is charged for the first two users and the price drops as more users are added.
While most publications that report on scrap metal recycling prices offer weekly assessments, more than half of Davis Index prices are updated daily. Davidson says it is as real-time as the industry will allow, and the index is not trying to predict or influence markets. It only reports what has already happened - the deals that have already occurred. That information is taken and input into the software that is coded to remove bias, and the benchmarks are built from there.
The price accuracy and depth and width of Davis Index's coverage is vast with research targeting everything from collection prices to consumer buying prices to export prices. Davidson says, "Vertically, we're in the entire supply chain, but also the breadth, we're in so many countries. If you're trading with any of the major countries, ferrous, domestic, we cover 17 countries."
The Davis Index covers domestic markets that include municipalities of all sizes in Canada, the United States, Mexico, Germany, Japan, India, and more. Subscribers include mills, original equipment manufacturers (OEMs), scrap recyclers, import/export traders, and governments. Mills and smelters can use the index to enter supply contracts with raw material suppliers and/or end consumers such as die-casters and OEMs. OEMs use the index data to sell the scrap generated while making any metal-intensive product. Traders can track markets daily and can lock in the margin using supply/sale contracts on monthly average price benchmarking. Governments use price index data for duty and contract benchmarking while its analysts can mine the data for margin, spread, and trend analysis.
Davidson has a vision of what he wants the Davis Index to grow into: "You could be anywhere in the world, trading any kind of scraps, not just metals, but all the other commodity groups, and you would be able to access a piece of Davis Index information that makes your life a little better when it comes to your trade and your business."
Calculating price indexes
There is no special trick to the way the Davis Index gathers its vast amount of data. Analysts do it through phone calls, online chats, the sharing of buy/sell Excel sheets, etc. The kind of data collected includes transaction prices, volumes traded, the names of counterparties, firm bids and offers, indicative values, spread values between materials, and spread values between locations. There are constant efforts to encourage all market participants to submit this kind of data, knowing the more input that is received, the more robust the index becomes.
Davis analysts are trained to scrutinize the data that is gathered and received. They are taught to determine whether the data qualifies for use in the index or if it needs more research. After the data passes muster, analysts then use the index methodology to determine whether each data point is relevant and should be utilized in the final calculation of a particular price index. Ultimately, every index is reviewed and evaluated by a manager before the information is published.
Moving beyond the status quo
While the Davis Index is currently functioning in the manner that Sean Davidson had envisioned, he still strives to make improvements. While the types of improvements differ, they all share the same goal of gathering more and more data. Davis Index encourages people to be contributors of information - and not everything is always about the price of a transaction. Factors such as freight logistics, business practices, and governmental policy can come into play.
There will always be a need to improve the technology. This would entail being able to bring in better flows for information sharing and data visualization, as well as better tools to be able to interact with export/import data and production data.
There is also the desire to get more Davis analysts out into the field visiting local yards and businesses whether they are a customer or not. Direct engagement and getting to know people in person would promote a freer sharing of information.
In time, Davidson would eventually like to launch price indexes for other recycled commodities such as paper and plastic.
Language can often be a barrier to access. Availability in only a few languages can be difficult for markets that have to translate the Index. Intent, meaning, and tact can be lost in translation. Davidson says, "We've been working with language AI for the last few years, we've been feeding a tool, it's developed and progressed to a really sophisticated level now."
In a few months, the Davis Index plans to start rolling out everything it does in multiple languages.
Accurate data delivers success for scrap recyclers
When having a conversation with Sean Davidson, you have to pay attention. His train of thought flows quickly and logically from one point to the next and any lapse of comprehension can result in missing a critical idea or opportunity to learn. And when you do follow his logic, it's like getting a shot of adrenalin. You're able to join in his sincere fervor for creating a level playing field for the industry.
Davidson believes that if he can offer a resource that enables the success of scrap metal recyclers, the results will be far reaching in the sustainability of the entire recycling industry. For him, creating the index was not about recognizing an untapped market and finding a way to make money off it. It was about making a difference.
He does not want to be in the business of making predictions of what tomorrow's prices will be or trying to steer the market in a particular direction. He believes the scrap recycling industry hates predictions, and he and his analysts pride themselves on gathering the most data possible - on deals that have already taken place.
Davidson takes great joy in seeing that the Davis Index has, so far, accomplished what it was designed to do and is heading in the right direction. He says, "As it begins to materialize and as hundreds and hundreds of companies of all sizes get onboarded, you start to see that, wow, this is actually working."