Metal Trading With China

While the potential for scrap trade with China is growing, the country has an economy to stabilize before it can become a consistent market partner.

Industry executives in the United States who are acquainted with Chinese industry say its operations costs are staggering. It is reported that the energy cost to run a Chinese copper refinery is nearly double that for a U.S. refinery. "High costs are limiting China's ability to move ahead," says one observer. One of China's largest steel mills, Wuban Iron & Steel Corp., was reported to be seeking overseas financial aid for an expansion program because it couldn’t get government aid due to the strict austerity program.

Some U.S. shippers complain of the unpredictability of the Chinese government's actions, such as its recent embargo on metal shipments. U.S. exporters say their shipments were embargoed despite contracts, creating financial losses. Nevertheless, some shippers insist they have had fairly good relations with China over recent years, although they admit that it hasn't involved volume business.

China purchases most of its primary metal outside the United States on a long-term-contract basis. Some tonnages have moved to China from South America, according to reports. Comments one copper trader: "Generally, China makes commitments for ores, concentrates, and blister and stays out of the secondary market, which is more sensitive to price changes." He adds: "China prefers to buy its copper in the lower-priced markets--often not the United States." It is said some of this prime metal comes from Japan and the Philippines.

Scrap Requirements Uncertain

China appears to have built a fledgling business in iron and steel scrap with the United States, but it hasn't moved much one way or the other. In 1986, U.S. exporters shipped 2.97 million net tons (mnt) of iron and steel scrap to China; in 1988, that figure dropped to 2.23 mnt. In the first 11 months of 1989, China bought 2.43 million metric tons, mainly carbon steel scrap.

China is reported to have produced 61 million tons of steel in 1989. It will need twice as much by the end of the 1990s, according to Chinese economists. A report published by the Japan Iron and Steel Federation notes that although China is a big buyer of Japanese steel, its purchases in the first half of 1990 are expected to approach only half the normal level. The needed steel will have to come from somewhere.

Nonferrous scrap purchases from the United States have been more recent and remain intermittent, U.S. exporters say. Some 14,000 metric tons of copper-bearing scrap were shipped to China in the first 11 months of 1989. A little more than 1,000 tons of aluminum scrap were exported there in the same period, as were about 2,500 tons of lead. "It's still small potatoes, tonnage-wise," remarks one shipper, "and it doesn't look as if it's going to change much."

Yet reports indicate that China plans to boost its nonferrous output by 6.5 percent between 1990 and 1995. The goal is to increase production of many metals, including copper, aluminum, lead, zinc, nickel, tin, magnesium, titanium, and antimony. A Chinese spokesman says aluminum will receive priority "since it is in shortest supply."

The austerity program is playing havoc with the country's ability to import needed raw materials. Imports in 1989 fell 3.9 percent from the 1988 level. Trade with Hong Kong remains paramount and some metal traders are opening offices there to take advantage of the potential for Chinese trade. There is, however, evidence that China seems intent on broadening its trade with the United States.

While the potential for scrap trade with China is growing, the country has an economy to stabilize before it can become a consistent market partner.

Industry executives in the United States who are acquainted with Chinese industry say its operations costs are staggering. It is reported that the energy cost to run a Chinese copper refinery is nearly double that for a U.S. refinery. "High costs are limiting China's ability to move ahead," says one observer. One of China's largest steel mills, Wuban Iron & Steel Corp., was reported to be seeking overseas financial aid for an expansion program because it couldn’t get government aid due to the strict austerity program.

Some U.S. shippers complain of the unpredictability of the Chinese government's actions, such as its recent embargo on metal shipments. U.S. exporters say their shipments were embargoed despite contracts, creating financial losses. Nevertheless, some shippers insist they have had fairly good relations with China over recent years, although they admit that it hasn't involved volume business.

China purchases most of its primary metal outside the United States on a long-term-contract basis. Some tonnages have moved to China from South America, according to reports. Comments one copper trader: "Generally, China makes commitments for ores, concentrates, and blister and stays out of the secondary market, which is more sensitive to price changes." He adds: "China prefers to buy its copper in the lower-priced markets--often not the United States." It is said some of this prime metal comes from Japan and the Philippines.

Scrap Requirements Uncertain

China appears to have built a fledgling business in iron and steel scrap with the United States, but it hasn't moved much one way or the other. In 1986, U.S. exporters shipped 2.97 million net tons (mnt) of iron and steel scrap to China; in 1988, that figure dropped to 2.23 mnt. In the first 11 months of 1989, China bought 2.43 million metric tons, mainly carbon steel scrap.

China is reported to have produced 61 million tons of steel in 1989. It will need twice as much by the end of the 1990s, according to Chinese economists. A report published by the Japan Iron and Steel Federation notes that although China is a big buyer of Japanese steel, its purchases in the first half of 1990 are expected to approach only half the normal level. The needed steel will have to come from somewhere.

Nonferrous scrap purchases from the United States have been more recent and remain intermittent, U.S. exporters say. Some 14,000 metric tons of copper-bearing scrap were shipped to China in the first 11 months of 1989. A little more than 1,000 tons of aluminum scrap were exported there in the same period, as were about 2,500 tons of lead. "It's still small potatoes, tonnage-wise," remarks one shipper, "and it doesn't look as if it's going to change much."

Yet reports indicate that China plans to boost its nonferrous output by 6.5 percent between 1990 and 1995. The goal is to increase production of many metals, including copper, aluminum, lead, zinc, nickel, tin, magnesium, titanium, and antimony. A Chinese spokesman says aluminum will receive priority "since it is in shortest supply."

The austerity program is playing havoc with the country's ability to import needed raw materials. Imports in 1989 fell 3.9 percent from the 1988 level. Trade with Hong Kong remains paramount and some metal traders are opening offices there to take advantage of the potential for Chinese trade. There is, however, evidence that China seems intent on broadening its trade with the United States.