Rust, junk and bent metal are proving a rich seam for scrap merchants, the modern-day Steptoes who have become millionaires thanks to soaring metal prices and tightening of rules on recycling.

Caricatured in the BBC comedy series as a rag-and-bone dealer, the typical scrap merchant is now an affluent businessmen, the cart and horse abandoned in favour of a Bentley Turbo.

Dealers' yards now contain high-tech salvage machines capable of stripping a car down to its components in seconds.

The largest scrap metal merchant in the UK is worth £1.1 billion and family-owned firms across the country are being inundated with buyout offers from ambitious rivals and private equity groups.

These firms are thriving because of soaring demand for raw materials in China and other rapidly developing economies, which has pushed up the price of all metals, including scrap.

The global price of scrap is forecast to rise from $382 (£192) a tonne this year to $418 next year - double the price it was five years ago.

The UK metal recycling business is estimated to be worth £1.9 billion and 8.2 million tonnes of metal is retrieved from cars, fridges and old machinery every year.

Most of the yards are still family-owned, having been handed down from generation to generation. The recent boom has made the owners extremely wealthy and many have sold out.

John Harry, one of three brothers who own the scrap company S.Norton, said: “This industry is getting richer and we have had offers to buy the company. There is a lot of that in the industry at the moment but we are not really tempted. There are still things we want to do.”

Norton is based in Liverpool and processes about one million tonnes of scrap a year. Most of its iron and steel scrap is exported to smelters in Europe.

The company had a turnover of £147 million in 2006, up 10 per cent on the year before, and is valued at about £175 million.

Dafydd Evans, a director of Close Brothers, the corporate finance house, said: “This industry is driven by commodity prices and some operators are making huge amounts of cash, and this is one of the drivers of consolidation in the sector. Historically, scrap merchants only had a regional focus because they had to know all the builders and factory contacts. As a result, family firms dominate in their own area, but the high prices are encouraging them to sell out.”

The two largest scrap merchants in the UK are European Metal Recycling (EMR) and Sims Metal Management, which is listed in Australia.

EMR, based in Warrington, is owned by the Sheppard family and is estimated to be worth £1.1 billion. It had a turnover in 2006 of £1.7 billion. EMR and Sims have both bought numerous small scrap merchants across the UK in the past three years and they are now expanding into the United States.

The scrap industry has been given a boost by new European directives on recycling. About three million cars are scrapped each year and 85 per cent of the content must be recycled.

The easiest metals to recover are iron and steel, which account for 80 per cent of all the metal recycled in the UK.

However, these ferrous metals are also the lowest value when recycled and account for only 22 per cent of turnover. Scrap firms are developing new technologies to reclaim the more valuable metals found in car engines and exhausts, such as aluminium, lead and titanium.

Aluminium, for example, is only 13 per cent of scrap volume but 57 per cent of total value, according to Close Brothers.

Scrap metal firms are also looking to extract more plastics from cars and machines.

Mr Harry said: “Only about 70 per cent of a car is metal so there is still a big waste if you are not recycling that material.

“It is difficult to separate plastics and other materials but it is worth trying to salvage them.”

Scrap metal recycling remains a dirty industry, but the modern Steptoes are cleaning up financially.

Turning rust into gold

Company | Value | Ownership

1 European Metal Recycling | £1.1bn | Sheppard family

2 Sims Metal Management | £3.8bn (inc int business) | Australian listed company

3 S. Norton & Co | £175m | Harry family

4 C.F. Booth | £83m | Booth family

5 Metal & Waste Recycling | £77m | Barclays Private Equity

Value based on ebitda multiple of 8.5 times

Source: Close Brothers

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