May/June 1993
The recent Copper Roundtable focused on the red metal's increasing internationalism and factors directing its flow around the globe.
BY SI WAKESBERG
Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.
The growing role of Eastern Europe, Chinese buying, and changes in the Common Market have been vital influences on the international movement of red metal scrap, said speakers at Scrap Processing and Recycling's Copper Roundtable, held in February in New York City. Looming over all these factors, however, are the clouds of environmental regulations, which pose a disturbing challenge to the world copper industry, roundtable speakers pointed out.
The Eastern European Copper "Gold Rush"
For those who question the impact of Eastern European supplies on the world copper market, consider this: The voluminous stream of copper scrap from Eastern European countries last year "has created a depressed scrap market" in Western Europe, prompting metal to be traded "in wide discounts to LME [London Metal Exchange] values," said Robert A. Stein, manager of the nonferrous metals division of Louis Padnos Iron & Metal Co. (Holland, Mich.). Just how voluminous has it been? According to Hans-Gerhard Hoffmann, commercial director of Huttenwerke Kayser AG (Lunen, Germany) the flow of copper scrap from Eastern European sources increased 44 percent in the first three quarters of 1992 compared with the same period of 1991. Explaining this trend, Hoffmann noted that many in Russia and other former Soviet republics saw copper scrap "as one of the items for which they could easily find export markets and obtain hard currency" last fall, prompting accelerated exports of scrap to the West.
Germany has been a big buyer of this material, Hoffman indicated. In fact, he said, in the first nine months of 1992, Germany imported about 80,000 metric tons (mt) of copper scrap from Eastern Europe—almost 50 percent of its total imports—with most of the metal coming from Russia and the Ukraine. Such heavy purchases raise a serious concern, he said: "West European copper refiners have started to become dependent on copper scrap flow from Eastern Europe," a dangerous prospect since much of this supply "is temporary and unreliable."
Already, in fact, this Eastern European "gold rush" in copper scrap—what could be described as a disorganized spree of profiteering—may be coming to an end, as sizable merchant companies with an understanding of copper scrap quality and a desire to arrange long-term business evolve in the former Soviet republics, Hoffmann observed. "People are acting more rationally" than last fall, he said, and "they are looking at international prices."
Furthermore, while vast quantities of scrap are available in these republics, much of this material is essentially unrecoverable because their collection, distribution, and processing facilities are either nonexistent or antiquated, said Robert C. Reiley, director of the Office of Materials, Machinery, and Chemicals in the International Trade Administration of the Department of Commerce. Ironically, the resulting distribution and processing bottleneck has left Russia with a tight scrap situation, said Reiley, who recently toured that country.
Of course, there are still some opportunities to purchase Russian scrap, he said, but they could disappear as export restrictions are imposed and as severe new trade regulations are considered. Russia is also badly in need of equipment that U.S. firms could supply, he pointed out, and demonstration projects for recycling might provide opportunities, including joint U.S.-Russian ventures. "Since receiving hard currency payments for our exports is a problem," he noted, the Department of Commerce "is developing several `countertrade' options and mechanisms."
Remarking on the long-term prospects of Eastern Europe as a whole, Hoffmann emphasized that the region "will maintain a major influence on the international copper business" and could become not just a raw material source, but also a producer of fabricated products and a growing copper consumer.
The Far East Factor
In addition to flowing west, Eastern European copper scrap has been moving to the Far East , Stein said, pointing out that Western European material has also been making its way to Far Eastern consumers. In fact, he noted, low freight rates from Europe to the Orient, as well as the January 1990 decision by the European Community (EC) to allow unrestricted movement of scrap into and out of the Common Market (previously, material could only move freely among EC member nations), have helped to boost European scrap exports to Asia. While this growing scrap trade between Europe and the Far East is generally heartening, there are drawbacks, Hoffmann noted. "These countries have protected domestic copper markets, with domestic copper prices well above world market levels due to import duties, tariffs on refined copper, or, as is the case in China, government-influenced internal fixing of the domestic copper price," he explained.
The Europe-to-Far-East copper scrap trade is also being felt in the United States , Stein said, where it's changing the pattern of scrap flow. As Far Eastern markets became flooded with European scrap, West Coast U.S. exporters had to find other outlets for their material, often redirecting it to the Midwest , he observed.
The one Far Eastern market that hasn't been closed to U.S. copper scrap exports is China, Stein said, noting that "there should be no doubt that this nation has become a serious, major buyer of copper scrap on the world market." As proof, he reported that China imported 76,800 mt of U.S. brass and copper scrap in 1992, or 31 percent of totalU.S. red metal exports of 243,900 mt. In November 1992 alone, China imported 15,800 mt—54 percent of the U.S. monthly total.
In coming years, China 's copper consumption "will increase at an annual rate of 5 to 7 percent, and scrap will continue to play an active role in that growth," Stein predicted. "The Chinese appetite for smelter grades of copper scrap, especially No. 2, has created shortages in this country at times, and it will happen again."
(Editor's note: See "China Looms Large," beginning on page 45 for more on this country's role in the international scrap markets.)
Made in the U.S.A. ... Asian Style
While many Far Eastern consumers may be reducing their copper scrap imports from the United States, some are instead forging a different kind of business relationship with U.S. recyclers by operating consuming facilities state-side. For example, PMX Industries Inc. (Cedar Rapids, Iowa)—a subsidiary of Poongsan Corp., reportedly the largest copper and brass company in South Korea—began working to establish a brass mill in mid-America three years ago. Poongsan's goal was to create one of the best brass mills in the world "to provide U.S. manufacturers with unprecedented-quality-level products at reasonable costs," said Chung Ryu, PMX's president. As proof of its commitment, he noted, Poongsan invested more than $200 million in the project—"the largest single investment by a Korean company in the United States."
Today, PMX continues to have high aspirations, hoping to act as a catalyst in reviving copper and brass strip manufacturing in the United States , he stated. Ultimately, it would like to help this country regain world leadership in the field.
In contrast, another Far Eastern-affiliated company, Mitsubishi Materials Corp., had to abandon its plans to establish a "new primary, energy-efficient, minimum-pollution, modern copper processing plant" in Texas City, Texas, said Thomas S. Mackey, president of Mitsubishi's Cox Creek Refining Co. (Baltimore). Despite spending four years and $10 million filling out feasibility applications, wading through the environmental permitting process, and attending public hearings, the company never obtained the required approvals and decided to nix the project in March 1992, he explained.
The loss of this potential new smelter "leaves a current worldwide shortage of smelting capacity," Mackey stated, predicting that the situation is unlikely to change soon. In fact, he said it's doubtful that a greenfield smelter will be built in the United States in this century, blaming the current U.S. legal system, which "allows for considerable delays." Furthermore, he remarked, "there is a need to educate the general public, including the various environmental groups, that times have changed and heavy industry can be a truly responsible corporate citizen that can protect the environment."
Meanwhile, on the refining side, the recent startup and revitalization of Cox Creek Refining's tank house has "added to a surplus of excess copper refining capacity in theUnited States," Mackey noted, predicting that excess worldwide copper refining capacity will eventually force a cutback in the number of operating facilities.
Bearing Regulatory Burdens
The sort of environmental regulations that sounded the death knell for Mitsubishi's Texas City smelter are an even greater problem for German metals industries, Hoffmann said. As an example, he pointed out that the German government recently cut its maximum dioxin emission limits for "certain intermediate materials" by 50 percent, establishing maximum levels that are "the lowest in the world." What's more, the country is expected to "take the lead when it comes to introducing a tax on carbon dioxide emissions," he said.
Added to these hassles is the fact that German scrap exports are becoming more rigorously regulated and restricted "so that problem materials will often have to stay in the country of origin and be recycled on the spot," he said. But perhaps the crowning regulatory obstacle facing Germany 's copper industry is a new system requiring 24-hour on-line transmission of emission data from plants to government authorities—a system Hoffmann associated with "German perfectionism." In sum, he noted that "the German political attitude toward environmental regulations has not weakened despite increasing economic problems."
The recent Copper Roundtable focused on the red metal's increasing internationalism and factors directing its flow around the globe.