September/October 2013
Chinese recyclers are rapidly installing shredders to automate their ferrous scrap processing. Few doubt that scrap volumes and labor prices will rise to the point where shredding is inevitable, but the current economic climate has them waiting for that day to come.
By Adam Minter
On the banks of the Yangtze River in Zhangjiagang, China, roughly 90 miles northwest of Shanghai, one of the world’s largest metal shredders looms over hundreds of thousands of tons of unprepared scrap. This 10,000-hp behemoth—built by The Shredder Co. (Canutillo, Texas)—can pulverize 450 mt of scrap an hour. That’s not nearly enough horsepower to process the volume of metal China will scrap in the coming decade, according to the engineers and owners of the Fengli Group, the equally gargantuan company that owns this shredder. That’s why Fengli has installed a second 10,000-hp TSC shredder on the opposite bank of the river and a third one about 280 miles upriver.
China’s first high-speed automobile shredder was installed in 1994, according to Scott Newell, TSC’s CEO and chairman. The country now reportedly has more than 100 shredders, most installed in the past five years. TSC manufactured 14 of the 25 imported machines, sold to some of China’s biggest, most advanced scrap processors. The imported machines tend to be in the 4,000- to 6,000-hp range, while Chinese shredder manufacturers specialize in the smaller shredders—many in the 1,000- to 2,000-hp range—that are more common.
The growing number of shredders in China is evidence of a profound shift in how the Chinese recycling industry processes metal. Several factors are driving this evolution, including ever-rising labor costs and an increasingly competitive Chinese scrap industry. But no single factor is more important than China’s ongoing transformation into a semi-developed, consumption-based economy destined to generate far more scrap than even its army of manual laborers can process without mechanical assistance. What’s the size and speed of this transformation? In August, Standard & Poor’s (New York) estimated China will overtake the United States as the world’s largest consumer market within the next five years. It’s already the world’s largest automobile consumer, and it’s rapidly demolishing many of the buildings it constructed in the early years of its economic restructuring, boosting a ferrous scrap reservoir that has been growing for two decades.
Recyclers in China have built their shredder plants with the certainty that massive volumes of scrap will come their way. But right now, with a slowing Chinese economy, a shortage of infeed material, shredded scrap quality concerns, and strong markets elsewhere for the country’s end-of-life vehicles, they might be wondering, when will that future arrive?
Thinking Big
There’s no sign of a scrap shortage at Fengli’s sprawling scrapyard in Zhangjiagang, which has in inventory “hundreds of thousands” of tons of ferrous scrap, says Xiang Fa Hua, Fengli’s general engineer. “Our company is the biggest ferrous processor in China, both for domestic or imported scrap,” he says. In addition to those three 10,000-hp shredders, Fengli has numerous shears and other ferrous scrap processing equipment that give it 4 million mt of annual scrap throughput capacity, and its material comes from a wider geographic area than any other domestic processor, he says. Is all that capacity necessary? Fengli installed its first massive shredder in 2007 and processed more than 600,000 mt in its first year. Since then, however, the global financial crisis and other macroeconomic factors have slowed the flow of scrap into it and other Chinese shredders. During my visit in mid-summer 2013, this shredder was idle due to a lack of demand for shredded scrap, and Fengli has put its plans for a fourth large shredder on hold, says George An, president of Newell Pacific (Alhambra, Calif.), which distributes TSC’s products in China. Although Fengli probably could make do with a 6,000-hp shredder at this site rather than a larger model, “we are looking out 20, 30 years [ahead] to greater scrap volumes,” Xiang says. “Anyway, the bigger the shredder, the lower the operational costs.”
An leads me up the stairs that wrap around Fengli’s Zhangjiagang shredder. We stop on the deck below the control booth so he can show me how the company has addressed Chinese steel mills’ concerns about shredded scrap quality. From that vantage point, I look down on the large conveyor leading out of the shredder to a splitter, which feeds two conveyors side by side leading to two magnetic drum separators. This is an important feature on the shredder systems TSC sells in China, An says, because it allows higher throughput while still providing steel mills with much cleaner shred than the more common single-drum systems. That lower-quality scrap has prompted steel mills to lower their buying prices for shredded material. In fact, “most Chinese steel mills pay more for heavy-melting scrap than shredded scrap,” he says, unless the shredder can prove the latter’s quality.
Given those concerns, it’s interesting to note that the sheet metal, structural steel, and baled automobile scrap that feeds shredders at Fengli and other Chinese processors is cleaner than the shredder infeed in developed countries. An and Xiang say China’s shredder infeed generates about 7 to 8 percent residue after processing, and only about 2 percent of that residue is nonferrous—a low figure because “the collectors clean [the infeed material] by hand before selling it to the shredders—and if they don’t clean it, Fengli does,” An says. Indeed, in the distance I see 70 alligator shears lined up in two rows, surrounded by piles of unprepared steel. A small army of operators spends its days working through the piles. “The cleaned-up material goes to the mill, the rest goes to the shredder,” An says. The low proportion of residue the shredder generates makes it cost-effective for them to clean the material by hand.
Back on the ground, An walks me past the shredder plant’s towering dust-collection system and into a building that houses the nonferrous recovery system. Even though only a small proportion of Chinese shredder infeed material is nonferrous, An assures me the recovery system has been a profitable addition for Fengli, recovering a reported $50 to $100 of nonferrous value per shredded ton. The elements of the system seem typical of those used in other scrapyards:
A metering conveyor delivers shredded material to a trommel for sizing. Large pieces get diverted for hand sorting; small and medium pieces go through eddy-current separators and density sorters, with workers stationed at various stages of the line for additional hand sorting.
Fengli and other Chinese scrap processors tend to buy Chinese-made conveyors because they’re less expensive than imported equipment. Shredder hammers also are made in China, largely to cut costs.
Are ELVs the Key?
Currently, few end-of-life vehicles end up in China’s shredders. To get a better picture of where they go, I visit Baosteel Iron & Steel Resources’ auto dismantling facility in Shanghai’s Baoshan district. Xu Zhong, deputy director of operations, leads a tour of the facility, which he says is the largest of the four licensed to dismantle ELVs in Shanghai.
A forklift zips by carrying a Volkswagen sedan to the dismantling warehouse. It had emerged from a storage area where recently delivered cars are stacked three high on racks. Baosteel doesn’t purchase the cars directly from the owners; rather, a “junk car center” buys them from owners for a government-set price, which in Shanghai is RMB400 (US $65) a mt. That’s a steep price for just the scrap value of the vehicle, but, as in the United States, auto dismantlers buy the vehicles first and foremost for the value of their parts. Recycling only enters the equation after a car is stripped clean. Baosteel’s main dismantling warehouse is filled with boxes of steering wheels, head rests, seat cushions, seat frames, and other parts that never would be dismantled in higher-wage countries. “In China we have markets for all of these,” Xu says.
As we exit the warehouse, I see the company’s 1,000-ton Vezzani shear, which chops up the car hulks that remain. The processed scrap then heads to Baosteel for melting. Baosteel also has a truck dismantling facility that handles more tonnage each month than its car dismantling plant; neither operation has a shredder. “There aren’t enough cars to justify a shredder,” Xu says. When I ask him what volume of cars would justify that investment, he lifts five fingers in the air. “Fifty thousand per year,” he says. “Fifty thousand are impossible to dismantle by hand. Too many.”
The Chinese government has long encouraged the development of the secondary auto parts market—it explicitly names the sector’s development as a goal in its policies for the automobile recycling industry—but the used parts market would thrive in China even without the government’s support. Labor is still cheap enough—and China’s consumers are price-conscious enough—that they’ll gladly use high-quality secondary parts.
The robust used-parts market means, however, that car owners are much less likely to sell their cars for the statutory price. Instead, they sell to the many unauthorized dismantlers and refurbishers who offer higher prices. This is a problem for China’s ferrous recyclers. In a May 2013 speech, Liu Jianmin, chairman of the China National Resources Recycling Association (Beijing), said 4 million cars were taken off China’s roads in 2012, “but our data show only 1 million were actually recycled.” The others were either stockpiled or dismantled and recycled in “uncertified” processing centers, Liu reported. He did not mention the widely held opinion among Chinese scrap recyclers that many, if not most, Chinese cars retired on the wealthy east coast are repaired and shipped to the poorer provinces out west and, eventually, into other developing countries. “So many cars move west,” Xu says. “They even go to India and Africa. Buyers from South Africa come to our plant and buy parts.” This migration and export of the retired vehicle fleet reduces the supply for Baosteel and other auto dismantlers. Xu says Baosteel designed this facility in 2002 to handle 20,000 cars a year, “but we’ve never reached that [capacity]. There aren’t so many cars coming in.”
The best hope for China’s ferrous scrap processors is more volume, and any discussion of volume seems to touch on China’s emergence in 2009 as the world’s largest consumer of automobiles. Car sales hit 14.7 million in 2012, according to the China Passenger Car Association (Beijing), and the auto buying spree is far from over. By 2020, China will have 200 million cars on the road, Liu said in his May speech. Even a 5-percent domestic recycling rate would give China a steady supply of automobiles for shredding, he said. If ELVs continue to move west, however, the huge new shredders in eastern China might struggle to find scrap. TSC’s Scott Newell thinks mobile shears and balers might be the answer. This equipment—common in the U.S. and European markets—“can prepare scrap in remote areas so it can be transported efficiently to a larger shredding plant,” he says. Chinese companies with this equipment could compete for remote supplies of scrap to feed their shredders.
Ready to Shred
If the Baosteel facility shows ELV processing today, the future might look something like the six-month-old scrapyard of Dalian New Green Recycle & Resources Corp. (Dalian, China), known as DNG, a multipurpose recycling facility roughly 650 miles north of Shanghai funded and operated by Japanese nationals. The yard is in the Changxing Island Harbor Industrial Zone, an eight-year-old development area. Toshimichi Nagaoka, DNG’s president, shows me around the operation with Xin Yan and Eric Chen, a marketing specialist and sales engineer, respectively, for Metso Mining and Construction (Beijing), because at the heart of DNG’s fledgling scrapyard is a 6,000-hp Metso 98 shredder.
As we approach the machine, I see cranes loading the infeed conveyor with bales of sheet metal and baled automobiles they’re removing from flatbed trucks that have arrived from scrapyards within a 45-mile radius of the plant. Changxing Island is near the heavily industrialized Bohai Bay and its many steel mills and steel scrap-generating enterprises, with good access to several northern Chinese cities and cheap shipping to and from Japan and both Koreas, so the facility should have no trouble finding sufficient material to feed the shredder. So far, however—as Nagaoka puts it—“it’s starving!” Though the yard has the capacity to process 40,000 to 50,000 mt a month, this summer it was processing only 8,000 to 10,000 mt a month.
Nagaoka attributes the shortage of infeed material in part to China’s slowing economy, but also to red tape: DNG is awaiting a permit to shred cars. Government regulators tend to grant only one or two such permits per municipality, so the permit gives a company sole rights to shred all of the scrap in a wide geographic area. DNG believes its chances are good, but it’s not a sure thing. Even with a permit, there’s no guarantee the company can obtain the scrap it needs to feed its shredder.
If and when large volumes of ELVs enter the scrap stream, DNG is ready to handle them in a way that meets the standards of its Japanese partners. As I walk the shredding line with Metso’s Xin and Chen, they point out the system’s extensive de-dusting equipment, which includes a Z-box and a Venturi system that can remove small particulates. As we climb onto the scaffolding around the shredder, Chen points down to a long box into which the dust is deposited as a sludge for later disposal. DNG’s nonferrous separation system is in a separate building not connected to the shredder. As we walk to see it, Nagaoka explains that the plant is designed to also handle imported scrap, especially from Japan, though he notes that such scrap comes with its own problems. “Chinese scrap is cleaner than Japanese scrap because the labor is so cheap [here] that workers can pick the nonferrous,” he says.
For more than a decade, hand sorting has been the preferred and most economical means of processing mixed nonferrous metals in China. Metal-sorting warehouses can employ hundreds of workers. That’s not how DNG operates, however. In the nonferrous building, Nagaoka points to a long row of empty sorting stations, and in the next room, I’m surprised by the sound of mechanical grinding. At the far end of the room, a rotary mill processes the nonferrous fraction into smaller pieces for further separation. The mix goes through another magnetic separator before proceeding to one of two eddy-current separators. Only metal that the equipment can’t separate—for example, fragments of aluminum tangled in fine copper wire—gets moved to tables where just seven workers separate it by hand. With workers such as these earning more than $500 a month in regions with labor shortages (including Foshan and other Chinese scrap processing bases), and Chinese labor rates continuing to move upward, even during an economic slowdown, investing in fixed equipment is one of the easiest ways for a scrap processor to control costs over the long term.
The Import Option
Without a significant quantity of Chinese ELVs to process, one Chinese company is looking overseas for its supply. Huaren Resources Recycling (Zhangjiagang) is China’s first automobile recycling facility licensed to import ELVs, which it will process with its 6,000-hp TSC shredder—“China’s first indoor shredder,” says Newell Pacific’s George An—including a state-of-the art de-dusting system and downstream nonferrous sorting equipment. Huaren’s license allows it to process 600,000 mt of imported automobiles a year. The first trial load arrived in March. The company plans to get most of its imported vehicles from Japan, with Canada second. The United States and Colombia also will supply large volumes, says Joe Hong, a member of the family that owns the privately held company. Many U.S. vehicles will come from self-service yards and get exported as hulks or bales, he says. Huaren will dismantle the hulks to remove any remaining parts, then send what’s left to the shredder. The company is talking with Shanghai Automotive Industry Corp. (Shanghai), China’s largest auto manufacturer, about establishing a parts refurbishment business, Hong adds.
This summer, the plant was idle while it awaited a “big shipment”—vehicles for the second trial run, Hong says. If all goes well, the company was planning to start full production soon afterward. The project has received “significant” support from the Chinese government, including visits from high-level representatives of the National Development and Reform Commission (Beijing), China’s top economic planning agency, Hong says. “They are very interested to see if this model works. If it does, they’d like to see it replicated.” That development might make Western scrap shredders just as eager as Chinese shredders for China’s growth as a consuming society and the start of its domestic ferrous scrap boom.
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for a range of publications. Bloomsbury Press is publishing his book about the scrap industry this fall.
Made in China, For China—and the World
The Western image of Chinese scrap metal processing is that of row after row of low-paid workers painstakingly dismantling and sorting mixed metals, but the industry has relied on mechanization to a degree many have overlooked or misunderstood.
According to Qin Linsheng, chairman of the board and general manager of Hubei Lidi Machine Tool Co. (Yichang, China), the country’s largest manufacturer of scrap processing equipment, “the history of scrap processing equipment in China is actually the history of Lidi.” It started in 1968 as a state-owned company making machine tools for China’s slow-growing, government-owned enterprises, but even then it made some basic, low-tech scrap processing equipment. In the early 1980s, it began to focus more intently on making recycling machinery for China’s burgeoning metal processing industries. First it concentrated on balers; in the 1990s it turned to shears; since 2000 it has focused on shredders. In 2006 it became a private company.
Lidi remains active in all three market sectors, but shredders are Qin’s obvious passion. In 1996, when he was the company’s research and development director, he pushed the firm to acquire foreign shredder technology, even though there was not yet any demand for shredded scrap, or shredders, in China. Five years later, the company installed its first shredder—a 1,000-hp Newell machine—in Guangdong province. Since then, the company has sold 52 shredders, almost all of them 1,000- to 2,000-hp models.
Made in China, for China—and the world
The company exported one to South America and one to South Africa, but the rest are in China. Although Lidi says it would like to expand its global sales, it continues to do well in China, with orders to deliver more than 10 shredders this year, including its first 6,000-hp unit.
At the 21-acre manufacturing plant the company built in 2008, five shredders are under construction: two 1,000-hp machines and 2,000-, 4,000-, and 6,000-hp systems. With me on my visit to the Lidi facility is Tom Zeng, managing director of China operations for SGM Gantry China (Beijing and Shanghai), a manufacturer of magnetic separation systems. As the Chinese shredder business grows, the infeed material becomes more complex, and Chinese steel mills become more quality-conscious about the scrap they buy, Zeng is keen to expand SGM’s already-sizable presence in this market.
Our first stop is a warehouse in which machines cut out structural parts for each shredder. At the far end is a shredding box for a 2,000-hp unit; outside are various parts of a de-dusting system for another 2,000-hp shredder. Next door is a busy parts workshop filled with modern, computer-operated machine tools and some older, Lidi-made tools. We walk past axles, feed rollers, and rotor parts destined for 1,000-hp machines and parts we can’t identify. Lidi makes about 80 percent of its equipment and parts, Qin says. Then we proceed into the assembly warehouse. It’s an impressive sight: The huge room dwarfs four nearly complete shredders, along with an enormous shear, several rotors, machine tools, and dozens of parts in various states of assembly.
The growth of the company’s shredder business was slow and difficult, Qin says. He had to learn the intricacies of the machines, their operation, and how best to build them for China. For example, the company designs its conveyors to accommodate China’s electrical-transmission problems. Lidi’s shredders also feature a unique hammer design and a different angle of output for better flow of the lighter scrap getting shredded in China.
Lidi’s focus on small shredders has given it roughly 80 percent of the Chinese market for shredders of less than 2,000 hp. “If the market demands bigger [machines], we’ll make bigger,” he says. In China, the company faces stiff competition: “Other Chinese companies copy our machines in the under-1,000-hp segment, and the customers choose them for price reasons.” Lidi has the benefit of lower production costs compared with manufacturers in North America or Europe, however, which Qin views as a good reason to market the company’s products abroad.
—Adam Minter