May/June
2015
As its
economy slows and its manufacturing capabilities mature, China is relying less
on secondary materials from overseas, leaving U.S. nonferrous scrap exporters
to consider market alternatives closer to home.
By Helen
Burnett-Nichols
China’s rapid economic expansion at the beginning of this century
led to its seemingly relentless demand for U.S. nonferrous scrap. Container
after container headed to Chinese markets daily until demand peaked in 2011.
Since then, loads to China have steadily lightened due to a variety of factors.
“For a while there, whether you had
cast aluminum or bare bright copper or insulated wire, China was always the
best home for it.… And it’s not that way anymore,” says Matt Heitmeier, director
of nonferrous metal marketing and international trade at PADNOS (Holland,
Mich.). While China remains a vibrant market for U.S. and Canadian scrap
producers, “it’s not overwhelmingly the market for every commodity type that
you have,” he says. “The demand from a lot of our Chinese customers has
definitely dissipated over the last couple of years.”
With no catalyst for a rebound in
sight and no other scrap-importing country able to take the lead from China,
U.S. scrap processors are left with few options in the short term but to chart
a course closer to home.
All Roads
Led to China
China’s annual GDP growth soared as high as 14.2 percent in 2007,
according to data from the World Bank (Washington, D.C.). This double-digit
growth spawned much of the boom for copper and other nonferrous scrap,
Heitmeier explains. China has become the largest importer of U.S. aluminum,
copper, and zinc scrap, taking in as much as 78 percent of U.S. copper scrap
and 70 percent of U.S. aluminum scrap in 2013, according to ReMA data.
China thus plays a tremendous role
in the success or struggles of U.S. scrap markets. U.S. exports of both copper
and aluminum scrap by volume hit record levels in 2011 but have been falling
since then, according to statistics from the U.S. Census Bureau (Suitland, Md.)
and the U.S. International Trade Commission (Washington, D.C.).
China imported 1.09 million mt of
aluminum scrap from the United States in 2014—that’s still more than 60 percent
of total U.S. aluminum scrap exports and vastly more than the next largest
importer, according to data from the U.S. International Trade Commission
(Washington, D.C.) and the Census Bureau. But the trend is downward: China
imported 16.3 percent less U.S. aluminum scrap in 2014 than in 2013, according
to ReMA data. Globally, U.S. exports of aluminum scrap declined 8.1 percent in
that period.
The copper scrap export market is
experiencing similar declines. In 2014, the United States exported more than
104,000 mt of No. 2 unalloyed copper to China, down 38 percent from the 168,000
mt shipped in 2013, according to Census Bureau figures.
U.S. copper scrap exports from 2013
to 2014 fell 9.4 percent globally and 15.4 percent to China, while U.S. zinc
scrap exports tumbled 19 percent globally and 27.3 percent to China, ISRI
figures show. Overall, total U.S. exports of nonferrous scrap, excluding
stainless and precious metals, declined 8.4 percent globally and 16.4 percent
to China during that period.
What’s
Behind China’s Declining Demand?
China remains a vital consumer of nonferrous scrap, but its demand
has been slowing noticeably in recent years, observes Mark Weintraub, metals
trader and in-house counsel at Premier Metal Services (Solon, Ohio).
Nonferrous exporters and others
point primarily to the country’s slower-growing economy as the reason for the
decline. China’s double-digit growth began fading by 2010, when its GDP growth
rate declined to 10.4 percent; it slowed further, to 7.7 percent, in both 2012
and 2013; then it came in at 7.4 percent in 2014, according to China’s National
Bureau of Statistics (Beijing).
Weintraub sees a more far-reaching
trend as well. China is maturing as an industrialized nation, he says, and its
manufacturing efficiency is increasing. “Once you operate more efficiently,” he
explains, “you’re going to utilize less scrap in making your product.”
At the same time, the maturing
Chinese economy will start to generate more scrap domestically, says Shen Dong,
director of international marketing for OmniSource Corp. (Fort Wayne, Ind.). It
may take a decade or longer to reduce its reliance on scrap coming from North
America, he says, but “for the short term, I can see growth.”
Falling primary metal prices—for
refined copper, copper concentrates, and primary aluminum, for example—also
have affected China’s nonferrous scrap demand, explains Joe Pickard, ISRI’s
chief economist and director of commodities. “As primary prices come down,
scrap becomes a less attractive raw material substitute, which tends to weigh
on Chinese import demand,” Pickard says.
Another factor is China’s changing
political climate. “Everything slowed down, especially when the new [Chinese]
president came in two and a half years ago,” explains David Chiao, president of
Uni-All Group (Atlanta) and interim president of the Nonferrous Division of the
Bureau of International Recycling (Brussels). The new president instituted
crackdowns on corruption, inflation, and soaring real estate prices, which
reeled in the rest of the economy.
The government’s 2013 Green Fence
initiative brought greater scrutiny to the levels of contaminants in scrap
metals, plastics, and paper. The effect, Chiao says, has been to stop very low
grades of scrap from entering China. “You have seen the numbers are coming down
quite sharply,” he says.
Indeed, one of the new realities
for U.S. nonferrous scrap dealers is the extent to which countries like China
also are rapidly becoming more selective consumers when it comes to the scrap
they import. “When they say they want to buy a certain grade of metal, that’s what
they want,” Weintraub explains. “They don’t necessarily want to buy it with all
types of impurities or contaminants in it, which they had been getting for a
long time. And they’re being more aggressive with respect to coming back with
claims when they don’t get what they want.”
Weintraub urges better
communication between dealers and customers about expected quality standards.
U.S. dealers need to know what is acceptable to ship overseas, and customers
need to clearly define what they are looking for, he argues. It “has to be
communicated to scrap dealers in the U.S. so [they] are less inclined to ship
nonconforming material.”
Factors beyond normal supply and
demand dynamics affect the Chinese market as well, according to Alan Dick,
president of Alpert & Alpert Iron & Metal (Los Angeles). He names the
rapid change of its lending rules and regulations as one such factor. “You can
have significant orders on the books, believing that you’re operating in a
relatively stable environment, then find out that … the banking side changes,
and people are not able to get the access to capital that they thought they
were going to,” he says.
In the first quarter of 2014, Dick
recalls, some U.S. exporters “refused to take a blind risk” with China: “When
they’re unable to open up the letters of credit, for example, we effectively
don’t ship,” he says.
The bottom line for U.S. nonferrous
scrap exporters is that demand from China is not likely to pick up anytime
soon. Indeed, lower scrap export volumes seem to be the accepted new normal.
More
Pressures on Exports
The strong U.S. dollar has been “the last straw” for U.S. scrap
processors looking to export material to China and elsewhere, Chiao says.
It is having two main effects on
countries looking to import nonferrous scrap, Dick says. First, it’s making
their local supplies less expensive than imports from the United States.
Second, “considering that we’re working in a U.S. dollar-denominated commodity,
it’s making it more attractive for [other countries] to be exporters of product
and less interesting to be importers of product,” Dick points out.
Beyond the Asian markets, the
weaker euro also is “making it very expensive for European consumers to buy
U.S.-based or U.S.-generated product,” he adds.
On the plus side, strength in the U.S. economy is helping keep
material in the United States, which is another factor changing the export
dynamic, Dong says.
Is There a
Next China?
As China’s demand dwindles, U.S. scrap exporters are looking for
other homes for their material, Weintraub says. “There’s more talk of looking
to export scrap into South Korea, Vietnam, South America, Central America.”
Demand for some nonferrous metals
grew between 2013 and 2014 in South Korea, Mexico, India, Germany, and Canada,
Pickard says. The volume of exported nickel scrap, for example, climbed 18
percent in 2014 compared with 2013 due to improved demand from Canada and the
United Kingdom. U.S. exports of lead scrap also posted a slight gain in 2014,
according to ReMA figures.
Despite these trends, no other
country appears to be emerging as a significant buyer of U.S. nonferrous scrap
the way China has been. “I don’t think there is any replacement for China,”
Chiao says. “China has … the operation capacity and the market capacity” that
no other country has, he says.
While some shipments have been
going to Thailand and Vietnam, for instance, Chiao says “it is still remote to
see those countries replacing China’s processing capacity and market demand.”
The question, he says, is where the market is, not just where the processing
is. “You have to have the place, you have [to have] capabilities to process it,
and the capability to consume it,” he says. “So, I don’t think Vietnam and
Thailand can replace China. Not even close. We still pretty much rely on
China.”
Likewise, Dong sees signs of growth
in some countries in Southeast Asia, but they are just not “there” yet. “The
consumption over there is much less compared with China,” he says.
The extent to which U.S. processors still rely on exporting to China
is evident in recent data. For example, South Korea is the second-largest
importer of aluminum scrap from the United States, bringing in 169,000 mt in
2014—a staggering 84 percent less than China’s import volume over the same
period, according to USITC and Census Bureau data.
Looking at copper, Canada is the
second-largest importer of unsegregated alloyed scrap from the United States,
taking in 34,000 mt in 2014. But this was just a fraction of the 313,000 mt
that China imported last year.
“The Chinese economy and their
demand for raw materials is monstrous,” Heitmeier says. All the so-called tiger
economies combined—including Japan, if it pulls itself out of long-term
recession—could not match China’s demand. “You could put all those economies
together and add up their total demand for imports of nonferrous metals, and
you won’t get anywhere close to what the Chinese demand is in an average year.”
Looking
Ahead
Weintraub is not optimistic that exports of nonferrous metals will
ever reach 2011 levels again. “There’s no light at the end of the tunnel
[where] we’re going to wake up and China’s going to be … the savior of the
scrap metal industry,” he says. And, he adds, the United States would not
likely have the supply even if it did.
“I hear constantly from scrap
dealers, their flow of metal is off, they’re not getting as much metal,”
Weintraub says. “Some of that is due to increased competition, and some of it
is due to the fact that it’s just not being generated.”
The issue, he says, is that metal
is not returning into the U.S. market as it once did. Homes stripped of metals
during the mortgage crisis are not being replaced. More efficient, 20-year-old
stadiums generate less scrap when they are torn down. And cars are using less
metal.
As such, U.S. dealers will have to
go through a paradigm shift, becoming more efficient to stay competitive both
at home and in the export market. “They’re going to have to get better at
making a product that they can sell here, and in that, have to likely accept
lower value for metal that they know they’re going to have to take overseas,”
Weintraub says.
Couple these new realities with the
recent declines in the prices of oil and steel, Heitmeier says, and the U.S.
nonferrous scrap market will likely face a bumpy road in the early part of
2015. Zorba, Zurik, wire, and other nonferrous grades come from ferrous
scrapyards, and falling steel prices translate to less scale activity for the
yards and less nonferrous to recover, he notes.
But many scrap companies have
experienced these conditions before, and Heitmeier remains confident that the
situation will improve. “We recycle more material than we can consume
domestically, so we’re naturally going to have markets outside of the United
States that are then consumers—whether that’s a [South] Korean brass mill or a
steel consumer in Taiwan or a European refinery,” he explains. “The U.S.
generates more scrap than it can consume, but as prices rise and the dollar
becomes cheaper, the flow of metals increases.”
Pickard adds that if miners cut
back on primary production and capacity expansion plans in response to falling
commodity prices, that would help balance global markets and could be a
positive for scrap demand.
In an environment of low energy
prices and a trend toward reshoring of the manufacturing base in North America,
however, Dick says the domestic economy currently may be the one to watch in
terms of performance. “I’m almost expecting part of the recovery of this
business to be driven by an increased demand inside of our own four walls of
our country as opposed to any significant things happening in the export
market,” he says.
Helen
Burnett-Nichols is a writer based in Hamilton, Ontario.
The
Stainless Export Story
China produces more than half of the world’s stainless steel, but
it’s not yet a major player in the global stainless steel scrap market that so
many predicted it would be, says Barry Hunter, president of Hunter Alloys
(Boonton, N.J.). Instead, for years it has been able to rely on nickel pig iron
as the primary raw material for its stainless steel production.
In early 2014, however,
Indonesia—the key source of nickel ore for China’s production of NPI—banned
nickel ore exports, which many expected would force China’s stainless producers
to quickly beef up their demand for stainless scrap imports. That anticipated
additional demand has yet to materialize, Hunter says. “Whatever China’s
currently producing [stainless] with—whether it’s old inventories of ores and
NPI, or scrap, or new nickel—whatever it is, China has yet to physically impact
the international scrap market” as of late April, he says. (Hunter has long
asserted that the U.S. trade data on volumes being exported to Asia declared as
stainless scrap have been overstated and for years have greatly distorted the
picture of U.S. scrap availability.)
Looking at the remaining stainless
scrap export picture, Hunter says shipments of significant volumes of U.S.
stainless steel scrap to Europe could well become a thing of the past. Espoo,
Finland-based stainless steel producer Outokumpu’s million-ton mill in Calvert,
Ala., recently started production, he points out, leading the company to
purchase significant supplies of U.S. scrap domestically rather than maintain
what were historic bulk exports of U.S. stainless scrap for its European mill.
The same basic scenario has applied for years with North American Stainless
(Ghent, Ky.), he says, which is a subsidiary of Madrid-based Acerinox. This
should bode well for both U.S. scrap suppliers and consumers, he adds, as long
as U.S. mill needs are maintained.
“Years ago, we had basically three
major markets,” Hunter explains. “You had the Asian market, you had the U.S.
market, and you had the European market. Well, today, two of the major European
mills are the same two major mills that are in the United States, almost
creating a [single] U.S./Europe stainless scrap market” that’s the destination
for the vast majority of U.S. stainless scrap.
Other historic overseas competing
markets “are today providing little or no sales options,” Hunter says, “so the
market clearly has been here [in the United States] for some time.” That said,
imports of finished stainless from China and Taiwan into the European Union
have greatly affected EU stainless production, he notes. Recent EU action to
apply significant sanctions to such imports eventually will increase Europe’s
demand for stainless scrap, he says. Should the United States consider similar
sanctions, the availability of scrap could be severely tested, he adds.
The wild card remains whether China
eventually will need to import more stainless steel scrap as a result of
Indonesia’s ban or for other reasons. While U.S. and European stainless mills
operate with a 70- to 80-percent purchased scrap charge, Chinese mills
currently use only 20- or 25-percent scrap to make their stainless, Hunter
points out. Given China’s production level, if it were to increase its use of
scrap, “that would certainly affect the availability and price structure of
scrap down the road,” he says. “But so far, it hasn’t happened.”