July/August 2009
Though swine flu concerns brought a premature end to the CRRA recycling conference in Ningbo, China, the event still offered an invaluable glimpse into the current state of the Chinese scrap market.
By Adam Minter
In good times and bad, China's international recycling conferences serve as a barometer of its scrap trading mood. During the mid-decade bull market, the conferences featured elaborate entertainment, lavish banquets, and expensive souvenirs. By contrast, last fall's International Metal Recycling Forum—held during the market's nadir—was notable for its subdued mood, angry confrontations, and the rumored presence of bodyguards for a few Chinese and American traders. Six months on, markets are recovering in China, and some foreign scrap traders are venturing back into markets they recently had sworn off. Thus, it was with cautious optimism that 300 delegates—mostly Chinese—gathered May 17-18 in Ningbo for the China International Recycling Conference and Exhibition, organized by the China National Resources Recycling Association (Beijing).
Despite rising prices for many scrap commodities, the CRRA event convened under less-than-ideal circumstances. Days earlier, organizers of a steel scrap conference in Beijing canceled their event because of a tightened visa policy that reportedly prevented foreign delegates from attending. More seriously, the H1N1 "swine flu" scare was sweeping across China, fanned by state-owned media determined to show that the government was "doing something." Conference organizers, already stung by a dip in attendance due to the scare, gave delegates vials of vitamins at the registration desk to help them prevent illness. If that wasn't weird enough, guests staying at the official conference venue—the Nanyuan Hotel—received thermometers, face masks, and additional unmarked vials of pills at check-in.
Deadly pandemic fears aside, the conference was surprisingly well-attended, especially by local gate crashers who slipped past the event's security to join the bustling trading floor that materialized spontaneously next to the much-reduced exhibition area. When asked about the frenzied buying and selling, one Ningbo-based Chinese buyer explained, "They all have so much government money to gamble with now, so they buy from each other." He paused and then smiled. "Of course we prefer foreign quality, but we are not dependent on it in these markets." Regardless of who was buying and who was selling, this informal market supported the message delivered in the conference hall, namely, that things aren't—and never were—as bad as they looked.
Seeking the Bright Side
Predictably, most conference presentations reviewed the effect of the global economic crisis and subsequent market crash on the Chinese scrap business. Du Huanzheng of Jiaxing College (Jiaxing, China) claimed that 80 percent of China's domestic-oriented (non-importing) recycling businesses and municipal recycling "points" closed in response to the market crash. Likewise, the decimated markets impinged on the recovery of local recyclables, which declined by an estimated 70 percent, resulting in significant "environmental pollution," he said.
China's secondary smelting industry also felt the market pain. According to Du, 70 percent of secondary copper production, 60 percent of secondary aluminum production, and 50 percent of secondary lead production halted outright. By his estimate, the Chinese secondary metals industry has lost $4.41 billion since the start of the global economic crisis.
Despite this sober market reality, speaker after speaker offered reasons for optimism. Michikazu Kojima of the Institute of Developing Economies (Chiba, Japan) displayed a series of graphs and charts suggesting that—year-on-year—"the economic crisis doesn't have much of an impact" in Asia. China, for example, recorded growth in all categories of imported scrap in 2008 except for copper, which experienced a slight decline. Other Asian scrap-importing countries, including Taiwan, Indonesia, South Korea, Thailand, and the Philippines, had a similar statistical story. Kojima acknowledged that the year-on-year numbers are skewed badly by the overheated markets in the first half of the year. But he and other speakers noted that 2009's relatively strong markets—based on China's import numbers—are a continuation of the market activity before the crash.
In the same vein, Yan Qiping of the China Association for Metal Scrap Utilization (Beijing) observed that the decline in the global ferrous scrap market enabled China to boost its ferrous scrap imports and consumption. The nation had been priced out of the international ferrous trade for most of the last five years. In both 2004 and 2005, for example, China imported more than 10 million mt of ferrous scrap. But in 2006, its imports began to decline as international prices increased to levels that were no longer attractive to Chinese blast-furnace mills, which had easy access to cheap coal. According to Yan's statistics, China's total 2008 imports of ferrous scrap were 3.59 million mt, down 65 percent from its mid-decade highs. Year-on-year, 2008 imports grew 6 percent from 2007, but that increase largely was the result of 1 million mt of scrap imported in November and December—just after the price crash. China's ferrous consumers, many of whom are state-owned, rushed into the market—reportedly with state subsidies—looking for bargains. Since then, China has purchased more than 6 million mt of surplus ferrous scrap from Japan, the Philippines, Australia, and "other major steel suppliers," Yan claimed. As he explained, "A steel price slump in Europe and the United States, and a parallel increase in surplus scrap resources, turn American and European traders suddenly optimistic on the Chinese market. Before, the Americans and Europeans weren't so enthusiastic."
The results are dramatic: In 2008, China consumed 144 kg of ferrous scrap per mt of steel and iron production, a 4 kg increase—or about 2 percent—over 2007 and the first net increase in this closely watched metric in seven years. Even more impressive, this increase took place against continued growth in China's iron and steel sector. Chinese crude steel production in 2008 increased to 500.5 million mt, a 1-percent rise over its 2007 output of 494.9 million mt.
China also is generating more ferrous scrap on its own. According to Yan, Chinese companies recovered 28.6 million mt of ferrous production scrap in 2008, up about 6 percent. At the same time, domestic collections of "social scrap"—everything from household material to end-of-life vehicles—declined almost 3 percent, to 42 million mt, largely due to the poor prices paid to the small-scale traders who drive that sector. Those domestic resources are not yet sufficient to meet China's growing demand for ferrous scrap, which will reach approximately 75 million mt a year over the next two years, Yan estimated. By his calculations, China could face a 10 million mt supply shortfall every year for the next decade. For now, imported ferrous scrap will fill that deficit. As China recycles its second wave of consumer-bought appliances and automobiles, however, its reliance on imports will decline, ferrous scrap prices will drop, and it should be able to lift its scrap-fed steel production from the current 20 percent to 30 percent of its total steel output.
Of Stats and Standards
Turning to import/export issues, Zhou Kaiqing of CRRA's trade coordination administration committee provided detailed data on the volume of scrap-related containers China imported, by country, from April 4 to May 3, 2009. Overall, the numbers reflected the current uptick in the markets.
Of the 47,866 scrap-related containers China imported in that period, Hong Kong was the source of 13,281, or about 28 percent. Most of those containers originated in other countries, Zhou noted, and they simply were transshipped through Hong Kong, often to avoid taxes or other regulatory burdens. No information exists on the origin countries, but Zhou and other conference attendees said they tend to originate in the United States and the European Union. Aside from what might travel via Hong Kong, the United States shipped 11,074 scrap-related containers, or 23 percent of the total, followed by Japan with 5,460 containers (11 percent) and Germany with 2,433 (5 percent), Zhou said. The leading export company, by container volume, during that period was Australia's Encore Services with 2,147 containers (4.5 percent), followed by America Chung Nam—the U.S. export arm of Nine Dragons Paper—with 1,887 containers (4 percent).
Despite a thriving trade in nonferrous scrap outside the conference hall, there was precious little discussion of the trade within it. Zhang Mingxian of the Shanghai Non-ferrous Metals Association (Shanghai) provided the only substantive discussion, and he—like other speakers—was determined to find optimism in the current market situation. He pointed out that, despite the market crash, China produced 5.08 million mt of secondary nonferrous metals in 2008, a "figure nearly equivalent to the 5.23 million mt of nonferrous metals, in total, produced in 1997." Still, despite the quasi-historic nature of the 2008 figure, even Zhang had to admit that all was not well. Total secondary copper output in 2008 was 1.9 million mt, down from 2 million mt in 2007; likewise, aluminum production was 2.6 million mt, down from 2.75 million mt, and lead was 440,000 mt, down from 450,000 mt.
Statistics aside, Zhang spent most of his speech touting the superiority of Shanghai's environmentally secure nonferrous metal trade and the pitiable state of greater China's nonferrous metals industry by comparison. Pointing to Shanghai Sigma Metals, China's largest secondary aluminum producer and the world's largest single-site aluminum smelting plant, he noted that the company's environmental indexes exceed national standards, and its dioxin emissions are particularly low and noteworthy. "If all Chinese companies had to follow this standard," he said, "most would shut down immediately."
Zhang was quick to concede that Shanghai's many high-tech recycling companies are operating at reduced volumes due to China's large and thriving "informal" recycling sector, which is not subject to the stringent and expensive environmental controls required of bigger companies. He was critical of the secondary auto parts industry, noting that "lots of auto parts go into the informal sector and then are re-sold even if they aren't safe. Waste oils get dumped in the river or buried." Until these smaller, unregulated enterprises face tighter restrictions, Shanghai's formal recycling sector won't be able to thrive, he said.
Most significantly, Zhang revealed that Shanghai is actively lobbying the central government to cancel "the overseas preinspection for category six scrap metal," which includes processed scrap such as clean metals and shredded material. This program, a longstanding nuisance to scrap exporters around the world, has employed a large number of overseas Chinese in positions designed to assure quality exports, but the program has slowed exports and has been subject to allegations of corruption and profiteering in some countries. Though Shanghai authorities are open to the idea of nixing the overseas preinspection system, it's a national program, so the ultimate decision lies with the central government, Zhang said. If the program is canceled, he is convinced the change would increase imports and spur a resurgence in Shanghai's beleaguered nonferrous firms. As of mid-May, though, the proposal was on hold due to the swine flu outbreak, Zhang said.
A Premature Ending
The swine flu was a recurring theme at the CRRA conference, and never more so than at the end of the first day. According to conference organizers, one of the registered delegates—"a trader from Greenland"—came down with a high fever and was whisked away to a special unit at a local hospital. Unfortunately, the whisking did not happen quietly, and within hours panic swept through the registered delegates, many—if not most—of whom decided to leave the hotel, and Ningbo, before the authorities had the chance to put it under quarantine, as they had done to a hotel in Hong Kong.
Within a few hours the local medical authorities determined that the trader from Greenland had a flu, but not the swine flu. By then, however, the damage was done. When the conference convened for its second morning, hotel workers were busy tearing down the conference stage. The few hearty souls who had hoped to attend the second day's proceedings, including a session on plastics, were directed to a small conference room that seated, at most, 20 people; on that second morning, it held exactly 13. Making matters more difficult, the company assigned to provide translation services had disappeared in the wake of the feared epidemic, along with its translators and translation headsets. For all intents and purposes, the conference was over.
And yet, the displays still stood in the exhibition hall, and the thriving informal trading floor was as raucous as the first day (if not more so), filled with people who hadn't registered and who either hadn't heard about the Greenland flu or weren't going to let it interrupt their trading. Any foreign traders in the room would've been well-advised to find an interpreter: This was a market by and for the Chinese. In fact, one Chinese trader told me bluntly, "This is the future of the market." Whether that's true or not, Chinese conference organizers certainly need foreign suppliers to ensure the success of their events. Let's hope that, come November and the China Nonferrous Metals Industry Association's influential event in Guangzhou, politics will have cooled, markets will have improved, and epidemics—real or not—will be a mere memory. •
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for U.S. and Chinese publications and maintains a blog, www.shanghaiscrap.com.
Though swine flu concerns brought a premature end to the CRRA recycling conference in Ningbo, China, the event still offered an invaluable glimpse into the current state of the Chinese scrap market.