March/April 2007
European secondary smelters are thriving in today’s metal markets, but they’re concerned about rising regulatory burdens, high labor and energy costs, and ensuring access to markets for raw materials and finished products.
By Rachel H. Pollack
From an American perspective, European businesses seem to be saddled with high taxes, high labor costs, and stringent environmental regulations. It’s curious, then, that hardly anyone in the United States is turning copper scrap into refined metal, but a half-dozen such facilities in Europe seem to be thriving.
Today European secondary smelters say they face challenges that include ensuring fair access to scrap markets, coping with high energy costs, finding sources of skilled labor, and, yes, meeting ever-stricter environmental regulations. But officials of three such companies interviewed this winter share a rosy outlook.
The companies differ in size, scope, and the quantity of secondary materials they process. Norddeutsche Affinerie AG’s Lünen, Germany, facility treats 300,000 mt of secondary materials annually, including 100,000 mt of copper scrap, producing 185,000 mt of copper cathode, 3,000 mt of tin/lead alloy, and 2,500 mt of nickel sulfate. The Rönnskär smelter of Boliden AB, near Skellefteå, Sweden, primarily treats concentrates, but about 35 percent of its raw materials—225,000 mt a year—is secondary material, including 35,000 mt of electronic scrap. It produces 235,000 mt of copper, 475 mt of silver, and 17 mt of gold, among other materials. Metallo-Chimique NV, a secondary smelter in Beerse, Belgium, processes up to 275,000 mt of copper-containing raw materials annually, producing 115,000 mt of copper anode, 8,000 mt of tin, 15,000 mt of lead, and 200 mt of precious metal-bearing slimes. What these companies have in common is their faith in their ability to overcome the challenges they face, maximize efficiency, increase profits, and show the world how the smelting industry can be a good steward of the environment.
Fighting for free and fair trade
International trade in scrap dates back more than a millennium, at least to the age of the Vikings, who “were stealing or buying scrap to take home to Scandinavia” to melt down into weapons and armor, says Hans Henriksson, vice president of secondary raw materials with Boliden Commercial. Trade relations have generally progressed in a more civilized manner since then, with trade negotiations replacing warfare as the most common avenue for settling disputes. The smelters say they want fair trade, a level playing field, and they don’t hesitate to name countries where they think that’s not the case.
One complaint is that several Asian countries impose high tariffs on finished metal products, making it difficult for European smelters to compete with smelters in those countries. “The import duties on cathode in China and India are [twice as high] as import duties on scrap,” says Peter Boeckx, commercial manager at Metallo-Chimique. “If you are an importer of copper scrap … with low or no import duties, eventually you convert that [scrap] to copper product in China, then sell to your domestic market, [and] you’re making a huge margin. It’s an incentive for the Chinese to buy scrap in competition with us, an artificial advantage which allows them to offer prices that are sometimes totally unrealistic for copper scrap or copper concentrate.”
Further, says Gerd Hoffmann, general manager of the recycling division of Norddeutsche Affinerie, throughout Asia “there’s a lot of fraud, false [import] declarations, which then lead to false evaluations in order to save import tax. And of course, China prohibits [scrap] exports completely. OK, it’s an importing country, but a free market would also allow exports, [and] China does not.”
Asia is not the only trouble spot, though. Highly regulated supply markets in Eastern Europe are also problematic, Hoffmann says. “We have Russia, which charges a 50-percent export duty; we have the Ukraine, with an export ban, which is now [becoming] an export duty, but so high that it stays as prohibitive as it is. So those two countries have material but are doing everything to keep it for themselves.”
Hoffmann chides those who accept less than free trade. “Sometimes I wonder [if] those who call for free export possibilities, what they really mean is they want free access to subsidized markets or free access to distorting markets. That, of course, is the opposite of fair trade.” The solution, he says, is a World Trade Organization “that does not only care about sales markets but also about buying markets.”
Though the smelters understand that scrap sellers will always look for the best price, Boeckx says there’s also a value in maintaining long-term relationships, which the company has with many of its European and North and South American suppliers. Try to “spread your risk and do some business with us, and in difficult times we’ll be there for you. Don’t just sell all your materials to China, and then knock on our door as soon as the Chinese buyers step out of the market,” he says—“and expect us to give you a Chinese price,” adds Everard van der Straten, Metallo-Chimique’s managing director. “We have been running at 100-percent capacity in better and worse times, and in all those years we have been there for our long-term suppliers worldwide.”
Norddeutsche Affinerie takes a “very international” approach to its supplier relationships, Hoffmann says. “Last year we had about 500 suppliers in 50 countries. We are really trying to maintain a presence in many parts of the world,” even when “there are periods when it is difficult, pricewise, for us to compete,” he says. Some of the company’s supplier relationships in the United States date back more than 20 years.
Also affecting Europe’s ability to compete fairly are lax regulations on worker and environmental protection in some countries, Boeckx says, because they “allow a company to have significant savings.” Europeans “do not want to compete with the backyards of India and China,” Hoffmann says. “We want to be the alternative to that: the clean one, the serious one, the reliable one, the fast payers, the financially strong ones.” Right now what Europe offers is “not always the best available price,” van der Straten says, “but for sure [it’s] the best available technology. We are recycling, we are not polluting.” Because European smelters “consume less energy to produce or recycle one ton of copper, because we do not have emissions in the air, [and] because we do that in a safe manner for our workforce,” the rest of the world should support that, he says.
Another trade frustration is the application of Basel Convention rules on trade in potentially hazardous materials. “Our experience is that interpretation is very different from country to country, even from control to control,” Boeckx says. A shipment of secondary material might pass through port controls in nearby Antwerp, he says, but be blocked from moving by truck to the Metallo facility, which is just a few miles outside the city. “Normally we try not to ship
via Rotterdam,” van der Straten says, even though the Dutch port is less than 50 miles from his facility, “because it adds a border, it adds another interpretation” of the rules.
Basel has been a real headache, the smelters say, in the paperwork it requires, the need for cooperation from exporting countries, and the seemingly arbitrary differences in how similar materials are regulated. “It is burdensome,” Hoffmann says, “but we do appreciate the importance of environmental regulations for international deals. So we are not against that at all,”
as long as the burden is manageable.
High energy costs
Smelting and refining are energy-intensive processes, and Europe is facing the same rapid increases in energy costs as the rest of the world. The factors causing the price increases—higher costs for fossil fuels and energy industry consolidation—will sound familiar to those in North America. “Germany has the second-highest electricity cost for industrial, high-volume users in the EU,” Hoffmann says. “We have an oligopoly of basically four utilities that manage to push up electricity prices.”
Secondary smelters have a couple of energy advantages over primary smelters: First, producing copper from scrap uses less than half as much energy as producing it from concentrate. Second, other materials in the scrap itself can serve in part as fuel. At Metallo-Chimique, “iron for us is a source of energy,” van der Straten explains. The company uses natural gas to get the furnace started, then by feeding it the right combination of oxygen plus irony copper scrap, iron ore, aluminum, or other oxidizing agents, it can keep the furnace running continually at 800 to 1,200 degrees C for months at a time.
Boliden seems the least affected by high energy prices of the three companies. Henriksson says most of the country’s power comes from hydroelectric and nuclear plants, not fossil fuels. Even so, as the price for electricity goes up across Europe, Swedish power companies find they can charge more, he says. In response, Boliden is forming a joint venture with other base industries to purchase energy in larger quantities at a better price.
The other two companies are fighting high costs with plans for their own power plants. Metallo-Chimique has a natural gas-fueled cogeneration plant at its facility in Spain, and it’s looking into building a biomass-based plant in Belgium within the next five years. NA has plans to construct its own waste-to-energy plant in Hamburg in a joint venture with the city’s waste management authority. The plant, targeted for completion in the second half of 2009, should produce enough energy for both the Hamburg and Lünen facilities, making them independent of the electricity market. The cost is substantial, Hoffmann says, and “our investments should ideally aim at developing our core business, not necessarily producing electrical power, but this kind of market in Germany has put us under this pressure.”
Finding skilled labor
Over the years the smelting industry’s labor requirements have changed. “Twenty years ago, the only thing we would ask if you were coming to the foundry for work is that you be strong,” van der Straten says. “It was physically demanding work. Now a furnace operator must be able to work on a computer-linked furnace operation. The job is more complicated intellectually and less demanding physically.” Finding workers with the right level of education and interest in the metals industry is becoming a challenge.
One part of the problem, ironically, might be Europeans’ access to free or low-cost higher education. “In general in Belgium there’s a lack of technically skilled people because … it’s not made attractive in the schools,” Boeckx says. “Historically we have always found good-quality workers in the region for the kind of work that still required some education,” meaning welders, mechanics, and other technically trained blue-collar workers, van der Straten says, but “lately we have real problems to be able to recruit that kind of profile.”
Germany faces a shortage of young engineers, Hoffmann says, thus Norddeutsche Affinerie has stepped up its involvement with local universities to expose metallurgical students to the benefits of working for the company. Though this is a long-term strategy, the firm is “already seeing young engineers, young technical experts, showing increased interest,” he says.
Immigrant labor is another potential solution. Western Europe has seen an influx of skilled workers from Eastern European countries such as Poland and the Czech Republic. NA has “quite a number” of foreign workers, both skilled and unskilled, Hoffmann says. For other companies, though, language barriers can be a problem—Metallo-Chimique is in northern Belgium, where most workers speak only Flemish or Dutch.
Unions and extensive social welfare systems contribute to Europe’s relatively high labor costs. Labor constitutes Boliden’s second-highest cost, after raw materials, Henriksson says. Metallo-Chimique’s van der Straten estimates that about 40 percent of a Belgian worker’s gross salary goes to taxes, and the employer pays an additional 35 percent to the government on top of that. But the smelters insist that the expense results in greater efficiency and productivity. “People do really work hard and do well,” van der Straten says. “There’s not a choice: If you’re the most expensive worker in the world, you’d better be the best one.”
Germany is actually moving in the opposite direction in labor costs, in part in response to slow economic growth earlier this decade. Unions have kept their demands “comparatively low,” keeping wage increases below the European average for the past decade, Hoffmann says, and income taxes have come down as well. “So Germany has become more competitive as far as labor cost is concerned,” he says.
Environmental regulation
Yes, the European Union has high environmental standards, and individual countries’ standards can be even stricter. Meeting such standards is time-consuming and expensive: van der Straten estimates 20 percent of Metallo-Chimique’s capital improvement costs in any one year are for environmental controls; Hoffmann puts that figure at 30 percent for Norddeutsche Affinerie. But these smelters are proud of how well they have met the standards for clean air, soil, and water.
NA’s policy is to be “an environmental leader,” Hoffmann says. “We are not drawn by authorities into complying but are trying to be [compliant] up front. We think that’s the right thing to do.” The company even provides a continual readout of its emissions “directly onto the computer screen of the authorities. We are totally transparent.” This is important, he says, “because it creates trust with the authorities, and also trust with the local neighbors, because they know you are complying. That is important if you want to develop and grow at your location.”
In Sweden, “it has been a struggle against the authorities,” Boliden’s Henriksson says. “They have been clever enough to push us hard—but not too hard—[for us] to get better and emit less” over the past 30 years, he says. He advocates a “bubble” approach to environmental regulation, where the authorities give a company emissions or pollutant limits and the freedom to meet those limits however it chooses. “We are the best judge [of] where we should put the money to reach the goals,” he says. “What happens in the bubble is up to the industry, to find the most efficient and best way to treat the material.”
The smelters see a bright side of environmental regulation as well—it “creates chances and opportunities,” Hoffmann says. Metallo-Chimique, for example, is constructing a €5 million structure this year to meet requirements for controlling dust from its stocks of powdery residues. That’s a significant cost, van der Straten says, but it’s also an opportunity to mechanize the inventory and sampling system, making it more efficient in terms of storage space and sampling time.
One EU environmental regulation that seems to benefit secondary smelters is the Waste Electrical and Electronic Equipment Directive, which in 2005 mandated the recycling of used electronics in EU member states. Because of WEEE, “there is a much more comprehensive system of material collection” for end-of-life electronics, Hoffmann says. Companies that have the technology to treat scrap electronics are benefiting from the increased supply WEEE has created.
Within a year of WEEE’s implementation, the directive “started to have an effect on the tons” of both whole and partially processed scrap electronics on the market, Henriksson says. Because Boliden is one of fewer than a half-dozen smelters in the world treating e-scrap on a large scale, he says, “we’re hoping ... we can keep the very strong market position we have.”
Norddeutsche Affinerie also is investing heavily in electronic scrap treatment. In addition to the launch of its Kayser Recycling System furnace, which can treat 200,000 mt of material a year, it just opened a state-of-the-art sampling plant for high precious metal-containing scrap—including electronics—and a year ago it began operating its own electronics shredder to “prepare the material in the most suitable way for our furnaces,” Hoffmann says. (The company will continue purchasing shredded electronics from other suppliers, he adds.) NA’s two facilities currently process about 60,000 mt of electronic scrap, including 20,000 mt of printed circuitboards.
The companies are even looking ahead to when the United States might implement the equivalent of WEEE. “It would be the biggest e-scrap market in world,” Henriksson says—and the United States has almost no domestic capacity for treating it.
One impending regulation that has these smelters worried, though, is REACH, the EU’s wide-ranging new law on hazardous chemicals. Though materials classified as waste are exempt from the regulation, “REACH will lead to a vast, very costly, and bureaucratic burden for anyone treating raw materials in Europe,” Hoffmann says. “It could mean that for quite a large number of materials, we would have to have them registered and evaluated, and that would cost money, a lot of work, a lot of bureaucracy, and it would be time-consuming.”
Henriksson asserts that a strict interpretation of REACH “could be a tough challenge for the industry, and in the worst case, the death of the industry. Maybe [those are] very drastic words,” he says, “but it might be very, very tough to comply with it,” and the result will be that “Europe’s industry will lose its competitiveness.” It’s fine for Europe to have high standards, Henriksson says, “but the metal market is a worldwide market, and all regulations cost money. … Someone has to pay, and if the copper customer is not willing to pay the cost for ‘green’ copper, [he] will buy from China or Chile instead.”
A bright future
Despite REACH on the horizon, these European smelters are confident that the EU will not impose a regulatory burden they can’t meet. “Even though we’re a little bit pessimistic about how regulations look today,” Henriksson says, politicians “understand we need the business and we need some environment to work in.” It’s essential that the smelting industry remain viable in Europe, he says, because “if it’s closed, it will never come back again.”
There’s some concern that challenges that are surmountable today, when metal prices are high, might be less so tomorrow. But at the same time, it’s just as likely that the playing field will get more level from the rest of the world bringing facilities up to the European environmental standard. “Others in the world who are now treating scrap somewhere in a backyard or burning cables in an open field, that will come to an end,” perhaps within the decade, Hoffmann says. They “will have to do a lot of what we already have done in the past,” and when that happens, “we must make sure we maintain our edge over our competitors in other parts of the world.”
Rachel H. Pollack is editor of Scrap .
European secondary smelters are thriving in today’s metal markets, but they’re concerned about rising regulatory burdens, high labor and energy costs, and ensuring access to markets for raw materials and finished products.