An eBay For Steel

Turning surplus steel into gold

In early 2003, Scott Shapiro, an independent steel broker, was trolling for leads online when he came across an auction site called SteelSalvor. The site provided a way for steel importers or insurance companies to find buyers for their damaged or surplus steel, potentially putting middlemen such as Shapiro out of business. "As a steel broker, I hated -- in capital letters -- what this guy was doing," says Shapiro. "But as a businessperson, I thought it was a brilliant idea."

Shapiro, who works from Narberth, Pa., promptly flew to Houston to meet the site's owner, Scott Dawson. Dawson had worked inspecting and selling rejected steel for a marine insurance adjuster before he came up with the idea of putting the surplus steel on a virtual auction block instead.

After all, about $5 billion of steel is orphaned in U.S. ports each year, much of it damaged during shipping. Importers and their insurance companies, on the hook for the value of the steel in its pristine state, then must scramble to find local salvage buyers. With $100,000 from investors and his own savings, Dawson figured he could put the whole process on the Web, hosting his first online auction at the end of 2001.

Shapiro impressed Dawson with ideas to lure new sellers and a hefty Rolodex filled with potential steel buyers. The two men quickly realized they would make great partners. By October, 2003, Shapiro was CEO of SteelSalvor and had invested $30,000 for a 30% stake. Shapiro brought in a silent partner who contributed $250,000 and purchased 40% of the company; Dawson is now president.

Since then, what had been just another struggling e-marketplace has become a fast-growing and profitable partnership. SteelSalvor collects a 5% fee on every sale that meets or exceeds the seller's minimum price. In the first half of 2005, revenues reached $14.5 million, well above last year's total of $10.5 million. Two years ago the site hosted a handful of auctions a month; now it's doing about 20 a week. SteelSalvor signs up an average of four new bidders a day. With only four employees and little overhead, "Everything we do is geared toward making a profit," says Shapiro. "You don't just grow for growth's sake."

Sellers can auction anything from a 20-ton coil of sheet steel to entire truckloads. SteelSalvor e-mails sale details to its list of about 6,300 registered bidders, most of whom are brokers or smaller manufacturers. Buyers must pay cash, usually via wire transfer. SteelSalvor's roster of regular sellers includes manufacturers such as Honda, which sells odd lots every month, and Ryerson Tull, which auctions off slow-moving inventory. SteelSalvor "has been saving us a lot of legwork," says Katie Jorgenson, a claims manager with Cargill's steel trading unit. "Their site provides a very good vehicle for customers to gather around. It creates a competitive environment."

Much of SteelSalvor's rapid growth is the result of the 49-year-old Shapiro's won't-take-no-for-an-answer attitude. It took him 13 months of phone calls, for instance, before Honda agreed to a trial auction last October.

Shapiro's next frontier is Europe, where he's working with insurance companies on a separate European site. Proving that a niche player need not remain a bit player.

By Michael Arndt

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