May/June 1994
U.S.-based foreign buying offices are becoming established players in the international trade of all types of scrap. What are they, who do they represent, and what is their role? Here’s an introduction to these unique operations.
By Kent Kiser
Kent Kiser is an associate editor of Scrap Processing and Recycling.
Legend has it that some foreign consumers will go to incredible lengths to buy U.S. scrap for their operations back home.
One account circulated around the industry, for instance, tells of how a group of Taiwanese buyers traversed the United States with briefcases full of money in search of irony aluminum. Another story centers on a few Chinese consumers who are said to have traveled from scrap plant to scrap plant with their own roll-off containers, also seeking irony aluminum to fill their boxes and satisfy the needs of their scrap-hungry nation.
While these tall-sounding tales might indeed be true, many foreign scrap consumers today have found as easier way to buy U.S. scrap--coveted for its price and quality--for their home operations: open a stateside buying office to serve as their eyes and ears in the United States.
Buying Office Basics
These foreign buying offices are charged with sourcing scrap for the parent firm, inspecting material prior to purchase or shipment, and/or making shipping arrangements. These tasks are typically handled by a small staff--usually fewer than a dozen employees and often only two or three.
While most serve as the principal U.S. scrap buyers for their parents, none are the only buyers, which means that U.S. traders--some with previously established relationships with the foreign consumer--can still sell direct to the consumer. “As far as I know, no foreign consumer requires you to go through its U.S. office,” says an East Coast ferrous exporter.
In their purest form, foreign buying operations are wholly owned subsidiaries of a non-U.S.-based corporation. As with every foreign-owned company operating in the United States , however, they must incorporated under U.S. business laws. Most claim that they are required by their parents to be self-supporting operations, only receiving “money from home” to pay for purchased shipments. Thus, many also export and, sometimes, import non-scrap materials and products as a way to help cover operating costs. This import/export approach not only frees the buying office from being to vulnerable to the vagaries of scrap trading, but also gives the parent company a broader foothold in U.S.business and trade.
Asian American Fibers Inc. (Vancouver, Wash.) is a good example. In addition to serving as the U.S. scrap paper buyer for the Bataan Group, its Manila, Philippines-based sister company, the firm purchases roll stock, papermaking equipment, scrap paper processing equipment, transportation equipment, machine parts, and miscellaneous supplies for Bataan. And China National Nonferrous Import & Export Corp. (New York City), which serves as the U.S. buying arm for China National Nonferrous Metals Industry Corp. (Beijing)--a ministry-level department of the Chinese government--imports antimony, tungsten, and tin into the United States in addition to exporting aluminum, copper, and nickel-cobalt scrap and primary metal to China.
Moreover, some of these foreign subsidiaries also have their own processing operations at which they prepare material to fit the needs of their home consumer. China National Nonferrous, for instance, owns and operates Virginia Iron & Metal Recycling Inc. (Portsmouth, Va.).
Reviewing the Players
Aside from a handful of longstanding Japanese-owned trading firms such as Mitsui & Co. USA Inc., Mitsubishi International Corp., Sumitomo Corp. of America, Marubeni America Corp., and Itochu International Inc. (all with head offices in New York City), foreign scrap buying offices are a recent phenomenon. Most have been established in the past decade, coinciding with a boost in industrial development--and scrap needs--in many Asian, Pacific Rim , and Third World countries.
Many believe this phenomenon is likely to last. One West Coast paper exporter, in fact, goes so far as to call U.S.-based foreign buying offices “at trend of the future.” He adds: “They are definitely here to stay, and their number is going to do nothing but increase.”
The majority of these foreign buying offices represent the big export consumers of U.S. scrap--mills and smelters in key Asian and Pacific Rim countries, Turkey, India, and Mexico. Few European scrap consumers have U.S. buying offices because, in part, Europe generates enough of most types of scrap to satisfy its needs and European consumers can often buy what they need more economically from other countries. Canadian consumers, meanwhile, have few, if any, U.S. buying offices because they are geographically close to U.S. suppliers and there are virtually no trade barriers between the two countries.
In the ferrous scrap market, South Korean consumers--the biggest export buyers of U.S. steel scarp--have the most buying offices, including representatives of such large steel players as Dongkuk Steel Group, Kangwon Industries Ltd., and Hyundai Group, which operates Inchon Steel, all based in Seoul.
Turkey, the second-largest consumer of U.S. ferrous scrap, also has a stateside presence through such offices as Equipment and Parts Export (New York City), which buys scrap for Chukurova Celik Endustrisi AS (Istanbul). And some Mexican steelmakers have also adopted this approach, as is the case with Hylsa S.A. de C.V. (Monterrey), which sources U.S. scrap through Transamerica E&I Trading Corp. (Corpus Christi, Texas).
In the nonferrous scrap market, Asian and Pacific Rim consumers can claim the most buying offices in the United States. Japan’s Daiki Aluminum Industry Col. Ltd. (Osaka), which reportedly operates the largest secondary aluminum smelter in the world, for one, is represented by Daiki International Trading Co. (Los Angeles), while many other Japanese nonferrous--and nonmetallic--consumers are served by the long-established Japanese trading companies mentioned previously.
Several large Seoul-based South Korean consumers also have nonferrous buying offices, including Samsung Corp., Which sources scrap through Samsung America Inc. (Ridgefield Park, N.J.), and Poongsan Corp., which is represented by Pan Metal Corp. (Vernon, Calif.). In addition, Indian consumers--traditionally strong buyers of U.S. nonferrous scrap--acquire material through such firms as Exim Inc. (Plainfield, N.J.), which is associated with three Indian producers of brass and copper rods and tubing, and copper/metal salts.
When it comes to paper, most buying offices are related to Asian and Pacific Rim consumers in Japan , Taiwan , Indonesia , China , and especially South Korea , which is the largest export consumer of U.S. scrap paper. These offices buy for such large Seoul-based mills as Ssangyong Paper Co. Ltd., Hansol Paper Co. Ltd., and Sedae Paper Manufacturing Co. Ltd., as well as big-time Taiwanese mills Ban Yu Paper Mill Co. Ltd., Yuen Foong Paper Co. Ltd., and Cheng Loong Co. Ltd., all headquartered in Taipei.
P.T. Aspex Paper (Jakarta, Indonesia) is also among the Asian mills with a U.S. buying office, and a few Texas-based offices represent Mexican paper mills.
Getting Down to Business
When it comes to buying scrap, most foreign buying operations receive purchase orders daily or weekly from their home offices telling them what to buy, how much, and in what price range. “They give me the inquiry about what they need and the price,” says Francis Yen, manager and buyer for Pan Metal.
The final decisions on which deals to make frequently come from the home office, however. “With some consumers, you talk to the New York buying office, but the decisions are made overseas,” says one U.S. exporter. An East Coast ferrous trader explains: “When you’re dealing with a $4 million to $8 million cargo, you can bet the purchasing decision is going to be made by the principals, not some underling in the U.S. office.”
Some U.S. exporters play up the limited decision-making ability of foreign buying offices, dismissing them as “merely collection points for information.” One U.S. shipper even states, “No matter how important they try to tell you they are, they really have no decision-making power.”
On the flip-side, buying offices play up their importance, noting that they can influence the decisions of their home consumers by recommending whether a shipment should be purchased. “our parent company considers our opinion to be very important,” says H.S. Chang, general manager of Kangwon Industries Ltd. (Fort Lee, N.J.). “We suggest they should buy something and, if it makes sense, they do it. We simply help our head office make its decisions.”
When buying scrap, most offices say they draw material from both processors and brokers, though many say they prefer to buy directly from processors. “We lean toward dealing directly with processors, but we don’t limit ourselves to going that route,” says Dick Southard, president/owner of Asian American Fibers. “We like to use the broker network at times.” Jin Kim, scrap buyer for Samsung America , offers a similar perspective: “We like to buy from scrap dealers, but we use traders as well because they tend to go into longer-term contracts and they can offer larger quantities.” To Kim, dealing directly with processors gives the buying office better control over the quality of the purchased material. “The challenge today is the source quality scrap,” he observes, “and you have the most control over quality when you buy direct.”
Reviewing the Basics
While there’s no denying that foreign buying offices are an entrenched part of the scrap trading business, two questions remain: Why do they exist? And why don’t foreign consumers simply buy through the existing network of U.S. merchants, brokers, and exporters?
The answers to both call foremost on control--primarily of scrap costs and quality. “The main benefit of such offices lies in being able to source quality material at a fair price from suppliers over a long period of time,” explains Southard. By having their own employees on the spot, notes a U.S. exporter, “foreign consumers think they can drive a better buy and develop a larger network of potential suppliers.” As Southard adds, “If you’re buying from several sources within the states, you get a much broader picture than if you’re only dealing with one or two from a distance.”
Buying offices also give foreign consumers, in effect, their own stateside broker, thus enabling them to limit their purchases from outside brokers and agents. “The foreign consumer may want to avoid the middleman--the broker--in the hope of saving money,” says Michael Friedman, president of Friedman Metals Brokerage Co. (York, Pa.). And there’s another thought at work here, as one foreign buying rep notes: “I believe that a broker is another company, but I am the consumer. In general, I think people work harder for their own company, and there’s no conflict of interest.”
On the matter of quality, foreign buying offices give the home consumer a direct, closer relationship with its suppliers and enhanced ability to monitor the quality of the material it purchases, say those who operate the U.S. offices of overseas consumers. “Being in a commodity business,” Southard say, “the source of supply and quality can vary tremendously, and our consumer uses us as a source to reduce or eliminate problems in that area.”
Having a U.S. buying office also gives foreign consumers the best of both worlds in the scrap trading business. On the one hand, they get employees who understand their culture, business practices, and language, which can eliminate miscommunication, expedite transactions, and minimize problems related to scrap purchases. “We understand not only their language, but also their problems as to the import regulations, government exchange restrictions, and the style of business in their country,” says Yogi Shah, scrap trader for Exim. On the other side, U.S. buying offices give foreign consumers a better handle on the U.S. market. As Chen Xia, manager of China National Nonferrous, explains, “We help our Chinese end users understand the U.S. market better. We bring them closer to the market.”
In addition, according to Friedman, such offices lend overseas consumers “some degree of credibility. It’s very important to see and be seen, and these offices can help eliminate the foreignness of foreign companies.” One exporter even asserts that these offices give foreign companies a chance to “legitimize their overseas operations, as well as own property in the United States.”
Despite the benefits consumers can attain through foreign buying offices, even those who operate the offices admit they aren’t quite the perfect answer to foreign buying needs. One inherent flaw: The significant time difference between the U.S. offices and their home consumers, which can be 14 hours or more, means that they two entities are on completely different business cycles. “By the time the Commodity Exchange [New York City] opens, Korea is closed,” says Samsung’s Jin Kim. “So we might have to call them in the middle to the night to adjust a price.” Southard adds, “All of our faxes go to the Philippines in the late afternoon, so the paperwork will be there when Bataan opens in the morning, and vice versa for us. All of our communication is done when either they’re sleeping or we’re sleeping.”
Then again, the U.S.-based offices can compensate for the time gap by working extended hours during the day and conducting business via phone and fax from home at night. “We basically work around the clock, and our homes sometimes become offices,” says Exim’s Yogi Shah. “We get calls late at night or early in the morning and most of our consumers know where to reach us, at home or in the office. It’s not unusual for me to take a call from India when I’m having dinner.”
Friends or Foes?
While foreign buying offices certainly bring benefits to their home consumers, what effect--if any--do they have on U.S.-based scrap exporters?
On one side is the U.S. trader who says, “They’re the bane of our existence,” asserting that such offices can drain business away from U.S. traders and their overseas agents. Such feelings have created friction, at times, between foreign buying offices and some native U.S. scrap firms. “When we first started, there was definitely some irritation,” says Southard.
Other U.S. exporters say such antagonism is a lot of sound and fury signifying nothing. “At this point, the elevator is so crowded that one more person getting on won’t make a difference,” says Warren Rosenfeld, president of Calbag Metals Co. (Portland, Ore.), a nonferrous exporter. “It comes down to competition, like everything else. It’s not going to go away.” Or as a West Coast paper trader expresses, “Foreign buying offices are my competition at times, and sometimes they’re my customers, so I can’t say I dislike them. It’s just different.”
Getting beyond the emotional reactions, foreign buying offices do bring benefits to U.S. scrap traders, says Friedman. “Such offices give U.S. processors and brokers someone domestically to call and meet at industry events,” he points out. “You need that personal interaction. Not all business can be handled by phone or fax.”
Buying offices also bring a degree of “mental assurance” to U.S. suppliers, says a West Coast paper exporter. As he explains, “The fact that a foreign consumer has a U.S.office and is buying thousands of tons each month gives you the assurance that the consumer won’t go bankrupt anytime soon.”
Moreover, some U.S. traders note that buying offices can ease the shipping arrangements and financial transactions between foreign consumers and their U.S. suppliers. “Instead of getting a check from a foreign company, you get one written from a U.S. bank,” says Rosenfeld, “and that’s very appealing.” The method of payment can range from cash-against-documents to wire transfer to standard invoice, with payment terms usually set at 30 days. In these situations, the buying office acts as the shipping and financial link between the consumer and the supplier, thus freeing the latter from the paperwork and potential hassles of international trading and banking transactions.
Looking at the bigger economic picture, Kangwon’s H.S. Chang points out tat foreign buying offices are good not only for the scrap industry, but also for the United States . “The presence of this office is very helpful to the American economy,” he says. Perhaps most important, however, is the role such offices play in forging ties between the United States and other countries, between domestic suppliers and foreign consumers. As Chen Xia of China National Nonferrous says, “Our main function here is to link the United States with China and help both sides understand each other and promote more business.” •
U.S.-based foreign buying offices are becoming established players in the international trade of all types of scrap. What are they, who do they represent, and what is their role? Here’s an introduction to these unique operations.