In this country, a lot of steel gets made with two key ingredients: scrap and snooping. Now the industry wants to see if it can cut out the second component by making metals prices more transparent.

One of the two main methods for making steel relies on recycling iron-based scrap -- including washing machines, junked cars or even old bridges -- by melting it into new steel. But there isn't a consistent and open system for setting scrap prices, and that has led to headaches and even harassment: Steel and scrap company executives have used helicopters and satellite photography to keep tabs on rivals' scrap and steelyard inventories, while pointing the finger at each other in trade publications. Some executives are also experimenting with alternative materials, hoping to end their reliance on scrap, although some of those plans have slowed.
"We've always questioned the accuracy and the timeliness of various types of scrap [prices] in the scrap marketplace," says David Sutherland, chief executive of Ipsco Inc., a Regina, Saskatchewan, steelmaker.
Now steel companies are signing onto a new project by Management Science Associates Inc., a Pittsburgh-based data-collection and -analysis firm, that aims to add price transparency to the scrap market.
MSA, which has tracked consumer trends for Coca-Cola Co., H.J. Heinz Co., MTV Networks and Levi Strauss & Co., has enlisted a dozen steel companies as members in its Raw Material Data Aggregation Service, or RMDAS. MSA charges member companies a fee to submit purchasing data and, in return, to see if prices they paid were in line with aggregate average prices paid by other steel companies in the program.
"Scrap is a free-floating commodity," says Ralph Pinkert, of MSA. "By nature, it's created an adversarial relationship."
In the past year, as scrap-steel prices surged to a record high of about $450 a ton, steel companies took to spying on scrap yards to see if supplies were as tight as reported. At a current average scrap steel price of $210 a ton, the 76 million tons of scrap recycled last year could fetch $16 billion.
"You're validating information constantly in this business," says Rich Brady, scrap-metal buyer for Fort Wayne, Ind., steelmaker Steel Dynamics Inc.
Keith Busse, chief executive of Steel Dynamics, is one such validator. He takes regular trips in a friend's helicopter or a company airplane to check on inventory levels at the scrap yards that supply his company to gauge how much scrap is available and whether prices are fair. "You can't help yourself, when flying by a city, to go check on the scrap supply," he said earlier this year.
Mr. Busse has earned the nickname "The Red Baron" for such trips.
Scrap and steel company employees sometimes even develop alliances to share aerial and satellite photographs of inventory levels at rivals' mills and yards. And scrap yards gain intelligence on steel-mill supply and production trends by asking their truck drivers who deliver scrap to the mills to report back.
Nevertheless, 14 steel companies -- including Steel Dynamics, Nucor Corp. and U.S. Steel Corp.
-- hope to minimize the contentiousness and price volatility in scrap buying by joining RMDAS.
Together these companies operate 53 plants and account for half of U.S. scrap purchases, or 2.8 million tons a month.
If RMDAS proves reliable, steel companies could use the data as the basis for forward purchasing of supply for three months or more, instead of following older practices of buying scrap metal only 30 days in advance. Some think RMDAS could also minimize the importance of large scrap bundle sales from big auto makers.
Robin Wiener, executive director of the Institute for Scrap Recycling Industries, says a transparent price index would create a better business climate for her organization's member scrap yards.
In the past, many in the industry used scrap prices published by the American Metal Market trade publication or Iron Age as a basis for transactions -- and even data junkie and Federal Reserve Chairman Alan Greenspan is said to watch scrap data. But some major steel companies believe those prices, gathered by telephone surveys, aren't accurate.
"We found a survey-based reporting tool isn't as accurate as a transaction-based reporting tool," says Mr. Brady, the scrap-metal buyer for Steel Dynamics.
Trade publications, however, suggest that RMDAS is optimistic and can't account for variations among grades of scrap and differences among geographic markets. "We will not change the method that we use," says Martin Abbott, publisher of American Metal Market. "The primary reason for that is the fact that there are many different ways to collect prices. Most of them are imperfect."
While welcoming increased transparency, some steel executives want more, including more up-to- date price quotes like those seen in other commodities. MSA executives say they are working on getting their price data being closer to "live" rather than a month old.
In commodity trading yesterday:
COFFEE: Arabica coffee futures slid on the New York Board of Trade as commodity funds, or large speculators, sold previously bought contracts, while buying from roasters did little to slow the decline, traders said. The July contract settled 5.25 cents lower at $1.1625 a pound after touching a one-month low of $1.16.
CRUDE OIL: Prices slipped at the New York Mercantile Exchange, but the market came back from steep losses on the idea that crude may stabilize after recent losses. Still, analysts believe the broader trend is lower. June crude oil fell six cents to $48.61 a barrel, well off the day's low of $47.60.