May/June 1993
This installment of our special 50th anniversary series examines some of the significant changes seen in the scrap export market in the past century, and takes a look at how recent world developments could bring about new opportunities.
BY KENT KISER
Kent Kiser is associate editor of Scrap Processing and Recycling.
For as long as there's been scrap and a way to transport it, recycling has been an international business. After all, scrap is a commodity, sold to wherever there is the greatest demand and the best price, and that often means a foreign land.
For U.S. scrap recyclers, the export market has served not only as an alternative to the domestic market in good times, but also as a safety valve during times of sluggish domestic demand and/or oversupply. Scrap exports are also a cornerstone of U.S. international trade, generating revenue to help offset the country's trade deficit. In fact, theUnited States can boast export/import ratios of up to 54-to-1 for scrap materials such as paper. In terms of volumes, the country is the world's leading exporter of scrap, withU.S. recyclers shipping approximately 18 million tons of metal and paper scrap worth several billion dollars to more than 44 countries in 1991.
This record of success is impressive considering that the international scrap trading market is notoriously unpredictable and mutable. In recent decades, in particular, the roster of international scrap players has changed and consumption patterns have shifted dramatically due to the emergence of the "global economy," Europe 's restructuring efforts, and growth in several developing countries. Some of these changes have reduced foreign demand for U.S. scrap, but others promise to open up larger markets than recyclers of yore could have imagined.
A Look Back
As a scrap-rich country, the United States has long enjoyed a position as a net exporter of scrap. Sure, there have been years when the country was a net importer or when it limited exports of certain types of scrap. But these episodes usually occurred around times of war—in the early 1920s, the early 1940s, the early 1950s, and the late 1960s—when the country needed all the scrap it could get and when it cut off relations with some formerly friendly overseas consumers. There have also been times when some domestic scrap consumers—U.S. steelmakers in particular—have tried to limit or ban scrap exports to counter perceived scrap shortages, but most of these efforts were ineffectual, thanks to scrap industry opposition. In general, however, statistics compiled by the federal government and various scrap trade associations reveal that U.S. scrap exports have been expanding, not contracting, over the years—a trend that bodes well for U.S. shippers.
Prior to 1954, U.S. exports of scrap iron and steel rarely surpassed 300,000 tons per year, though the business had an uncharacteristic boom between 1934 and 1940, averaging more than 3 million tons per year, with a high of approximately 4.6 million tons in 1937. In 1954, following the Korean War, U.S. scrap iron and steel exports climbed from war-year lows to pass the 1-million-ton-per-year mark once again, and annual shipments have remained above that level ever since. The export market reached its all-time high of 13.3 million tons in 1989, dropping to around 9.6 million tons last year, according to Department of Commerce estimates.
In the nonferrous scrap arena, aluminum and copper have traditionally been the most heavily exported materials, with U.S. recyclers shipping for export 476 tons of aluminum scrap in 1939, the first year in which the federal government specifically tracked such data. Since then, the annual totals have varied widely, from a low of 14 tons in 1943 to a high of 646,000 tons in 1989, according to the Department of Commerce and the Aluminum Association (Washington, D.C.). Nevertheless, since the market began its upward spiral in 1978, when it surpassed the 190,000-ton-per-year mark for the first time, it has not dipped below that number.
Copper scrap, meanwhile, had a record of erratic export demand prior to 1973, ranging from a low of about 5 tons in 1943 to a high of about 76,000 tons in 1954. Spurred by demand in the Far East , copper scrap exports took off beginning in 1973, reaching a record high of 405,000 tons in 1989, according to the Department of Commerce.
As for scrap paper, the federal government and the U.S. pulp and paper industry began tracking scrap paper exports in 1914. In that year, domestic packers shipped 15,500 tons of "waste fibrous material," which included rags and all paper grades. Since then, exports of scrap paper have shown a consistent, gradual progression from a nadir of 9,804 tons in 1944 to a zenith of approximately 7 million tons in 1992, according to the American Forest and Paper Association (Washington, D.C.). The market experienced its fastest growth between 1973 and 1974, when exports jumped from 683,000 to 1.3 million tons, and between 1983 and 1989, when shipments rose from 2.7 million to 6.3 million tons.
The European Effect
Until the 1960s, the main foreign consumers of most U.S. ferrous, nonferrous, and paper scrap were European countries such as Germany, Italy, Spain, and the United Kingdom . Since then, European demand has dwindled to the point where, today, Europe is a net exporter of most types of scrap, making it a competitor rather than a consumer of U.S. scrap.
This trend has accelerated in recent years due to Germany 's reunification efforts and the breakup of the Soviet Union . In fact, European demand for nonferrous scrap—mainly aluminum and nickel—has been especially hurt by the vast supplies of metal pouring out of the former Soviet republics, which have been selling metal on the world market to amass hard currency. Much of this metal has ended up in Far Eastern countries—impinging on U.S. scrap shipments there—or in metal exchange warehouses, creating stockpile inventories and depressing prices.
European demand for U.S. scrap paper has also tapered off in recent years, but for a different reason: mandatory "recycling" laws, particularly in Germany . By focusing on collection rather than consumption of scrap paper, such laws have created "a significant glut of the bulk grades throughout Europe , which has displaced much of the movement of those grades from the United States ," explains Phil Alpert, a partner with National Fiber Supply Co. (Chicago). This glut and the increased competition from European exporters "will be major obstacles for us to combat over the next five years," says Steve Vento, president of the international division of William Goodman & Sons Inc. (Sunrise, Fla.).
Though Europe appears virtually closed to U.S. exporters in the near term, it could need U.S. scrap in the future, says Edward Hollander, a ferrous export merchant with Clarendon Ltd. (Glenview, Ill.). For example, he suggests, European consumers could "run out of ferrous scrap after their military surplus and demolition material is consumed—but it may take 5 or 10 years." Alpert also points out that the opening of Eastern Europe could present new markets, but those opportunities could be captured by scrap recyclers in Western Europe .
The Pacific Rim Revolution
Before the 1960s, Japan was the only notable consumer of U.S. scrap in the Far East , and it was almost exclusively a ferrous buyer. In the 1960s, Japan started to buy more nonferrous scrap, and it soon established itself as the largest consumer of U.S. aluminum scrap as well as a top-three buyer of scrap copper, nickel, and stainless. At the same time, however, Japan began fading as a consumer of U.S. ferrous scrap. In 1991, it accounted for only about 4 percent of U.S. ferrous scrap exports, and it has—in recent years—even exported its own ferrous scrap.
Looking beyond Japan, the most monumental development in the scrap export market since the 1960s has been the mushrooming demand from other Far Eastern countries, particularly Korea, Taiwan, India, Thailand, Indonesia, and Malaysia. Turkey, meanwhile, has become a major Middle Eastern ferrous consumer.
What has prompted this Eastern revolution? In short, industrial development. On the road to progress, these countries have developed a crying need for U.S. scrap to make industrial and consumer products. "There's a whole world out there with new capacity coming onstream," Hollander points out.
While U.S. exporters expect Pacific Rim countries to be strong consumers in the future, they also note that these consumers could buy more scrap from competing—and often closer—European suppliers. In the paper market, Alpert observes, "the Pacific Rim will maintain its primacy, but there will likely be a leveling off in demand from the big three— Japan, Taiwan, and Korea—with more growth occurring in Thailand , the Philippines, and China ." [Editor's note: See " China Looms Large," beginning on page 45, for details on this emerging market.]
U.S. shippers of all scrap commodities are also waiting on India and Indonesia , the world's most-populated countries after China. India is already a strong consumer ofU.S. ferrous scrap, especially shredded material, but its import duties change constantly and its demand can be spotty, exporters say. Indonesia , meanwhile, began buyingU.S. scrap only within the past decade, but its demand is expected to only go up as it develops.
Trading North and South Of the Border
The United States 's South American neighbors currently consume only small quantities of U.S. scrap. The region used to be a much stronger market, especially for paper, about 20 years ago, but its demand has diminished for a variety of reasons. In the past decade, for instance, Brazil—the region's most developed country—closed its borders and made import tariffs prohibitively high to fight its inflation, thus nixing its scrap demand. Still, U.S. scrap exporters see potential in South America. "Its economy is getting better, and while its consumption is small now, we're seeing more inquiries from some of the players there," says William A. Nielsen, president of Nielsen & Nielsen Inc. (Pomona, Calif.).
Meanwhile, even closer to home, Canada and Mexico have been consistent consumers of U.S. scrap for generations on end, and likely will continue to be essential markets, exporters predict. Canada is currently a leading buyer of many types of U.S. scrap, including aluminum, copper, lead, nickel, stainless steel, ferrous, and paper. In recent years, however, the United States 's northern neighbor, like much of Europe , has instituted mandatory "recycling" laws, which have mainly affected the scrap paper market. "There isn't as much movement of old corrugated from the United States to Canada as there used to be," Alpert says. On the other hand, he remarks, Canadian newsprint mills have responded to U.S. recycling programs by installing more deinking capacity, "so there's been a dramatic increase in the flow of old newspapers going to Canada."
Turning South, Mexico ranks as a principal consumer of U.S. ferrous, lead, and paper scrap. And Mexican demand is expected to increase in coming years as the country upgrades its existing electric-arc furnaces, installs new ones, adds deinking capacity at its paper mills, and increases its per capita use of scrap-based consumer products. Furthermore, plans for economic and industrial growth advanced by Mexican President Carlos Salinas de Gortari are expected to spur the country's need for scrap.
A wildcard in this trade scenario is the recently signed North American Free-Trade Agreement (NAFTA), which could open up new trade avenues and bring about more scrap consumption north and south of the border, scrap executives maintain. Some U.S. exporters assert, however, that free trade has always existed between the three countries and that NAFTA will not have any effect on scrap demand. "Usually it's a matter of whether they have the money or not," asserts a Southwest-based scrap exporter. "If they need the material, they'll buy it." At the very least, scrap executives agree, NAFTA should give North America, as a whole, more strength in the world market.
On the topic of trade accords, U.S. exporters express concern—but not worry—about the Basel Convention on the Control of Transboundary Movement of Hazardous and Other Wastes. At the moment, thanks to implementing legislation at the national and international levels, virtually all scrap materials are exempt from the treaty's restrictions or bans in international trade. This is positive news not only for scrap shippers, but also for importing countries. In fact, as U.S. scrap exporters note, foreign countries—particularly developing ones—would be stunting their own growth if they stopped importing scrap. "Obviously every country wants to see new development and industrial growth, and almost every developing country in the world is scrap poor," says a U.S. scrap shipper, who notes that some countries could still curtail scrap trade by imposing import limits.
Though NAFTA and Basel appear benign, or even beneficial, some domestic shippers dislike the presence of such trade accords. "With any kind of regulations, the scrap export market is going to be harder to be in," notes one East Coast exporter. "There will be more things to be concerned about."
Tracking the Changes
As any exporter will tell you, international scrap trading is an ever-changing business at the mercy of many factors, including freight rates, ship and container availability, currency fluctuations, worldwide economic trends, political events, and import duties. Moreover, the way scrap is bought, sold, and shipped to foreign consumers also changes over time.
In one notable development, many foreign consumers have opened their own scrap buying offices in the United States . Japanese consumers spearheaded this movement in the 1960s and other foreign buyers—in Korea, Turkey, Taiwan, and Indonesia, to name a few—have followed suit, primarily in the past decade. These offices give foreign consumers direct contact with their suppliers and on-the-spot control of shipments and other administrative details, as well as the option to avoid buying through domestic brokers. U.S. exporters find fewer benefits in this practice, pointing out that foreign buying offices can be "disruptive" and deny them access to some foreign consumers. They acknowledge, however, that these offices are here to stay.
Another significant change can be seen in how some types of scrap are shipped. Prior to the 1970s, virtually all scrap was shipped breakbulk—that is, it was loaded into a ship's hold on pallets, in bales, or loose—in Liberty ships that could carry about 9,000 tons. While ferrous scrap is still shipped breakbulk, most nonferrous and paper scrap is now exported in containers, and modern cargo ships have grown to the point where they can easily carry 30,000 tons and more. For U.S. shippers, this change has been positive because, in general, the larger the ship, the lower the freight rate. In addition, shipping scrap in containers reportedly is safer, leads to fewer insurance claims, and makes the material easier to load and unload.
Unfortunately for scrap exporters, tough times in the shipping business have forced some shipping companies to consolidate and share each other's ships, which has reduced the number of ships—and, thus, containers—available. And when containers are scarce, shipping firms prefer to carry higher-priced commodities rather than scrap materials, leaving scrap shippers with fewer export options. Perhaps in response to this situation, there's been a gradual resurgence in the use of breakbulk shipping, some scrap exporters note.
An additional obstacle presented by today's shipping industry is its increasing complexity. "Freight is a commodity all by itself," Hollander says, "and it must be negotiated like any other business transaction."
The Market of the Future?
Looking ahead, what does the future hold for U.S. scrap exporters?
On the positive side, scrap consumption is certain to grow in developing countries as they install new mills and smelters, improve their shipping facilities, and earn more foreign exchange. On the other hand, U.S. shippers will likely find themselves competing more and more against foreign exporters in a global economy that is becoming increasingly sophisticated and monitored.
For paper, there is also a long-range quality concern that could affect foreign demand. U.S. secondary fiber is recognized worldwide for its strength and purity, but as more domestic paper gets recycled, this quality could be reduced, making the fiber less "technically attractive" to foreign consumers, Alpert explains.
This possibility underscores the fact that no matter what commodity they handle, " U.S. scrap companies are in an international business, and unless they offer the best scrap at a good price, they won't be competitive," says one senior scrap executive. And there is always the unknown element of domestic demand. As Nielsen points out, "we could see more demand in North America than we've seen before, and that could draw tonnage away from the international market."
Still, U.S. scrap exporters maintain that, as one East Coast nonferrous executive puts it, "export is going to be the market of the future even more so than it is now." Beyond all the changes, the international scrap-trading story will continue, as it has for more than a century, and scrap will continue its global travels.
Bon voyage.
This installment of our special 50th anniversary series examines some of the significant changes seen in the scrap export market in the past century, and takes a look at how recent world developments could bring about new opportunities.