May/June 2003
A review of U.S. scrap exports over the past 12 years underscores the growing importance of one buyer (China) and one commodity (recovered paper), as well as key shifts among metals.
By Robert L. Reid
In 2002, U.S. exporters of most scrap commodities enjoyed their best year—at least in terms of tonnage shipped—since 1995’s record shipments. Total U.S. scrap exports for seven key commodities—including ferrous, nonferrous, and paper scrap—reached 20.7 million mt last year, 5.6 percent lower than 1995’s 21.9 million mt but up roughly 21 percent from 1991’s 17 million mt. This look back over the past 12 years shows not only a resurging interest in U.S. exported scrap but also global changes in demand in terms of both destinations and materials desired.
The China Syndrome
Not surprisingly, China is the biggest part of the story. Since 1991, China’s appetite for U.S. scrap has soared more than 1,500 percent from 396,000 mt to about 6.6 million mt last year. Its share of total U.S. scrap exports has also grown dramatically, increasing from 2.3 percent in 1991 to roughly 32 percent in 2002.
Other major buyers lagged far behind China’s dominant position last year. Canada was in second place at roughly 3.9 million mt (19 percent of total U.S. scrap exports), followed by South Korea at 3.1 million mt (15 percent) and Mexico at 2.7 million mt (13 percent).
For comparison, when South Korea was America’s largest scrap export market in 1991, it accounted for no more than 23 percent of the total. Last year, South Korea bought 21 percent less U.S. scrap than it bought in 1991, while both Canada and Mexico have increased their overall annual purchases of U.S. scrap in the past 12 years.
The export market today is also far more concentrated than before. In the first half of the 1990s, for instance, several countries played a leading role in buying various scrap commodities, with South Korea the biggest foreign consumer of U.S. ferrous scrap, Canada dominating America’s scrap paper exports, and Japan buying the most U.S. aluminum scrap.
In 2002, however, China was the leading scrap buyer in all but one of seven major categories. By the numbers, China alone accounted for 58.5 percent of U.S. copper scrap exports last year, 50.5 percent of lead scrap exports, 33.5 percent of aluminum scrap exports, 32.2 percent of recovered paper exports, 29.8 percent of ferrous scrap exports, and 29.3 percent of nickel/stainless/alloy exports.
What’s more, China led most of these categories by substantial margins. For instance, it surpassed Canada’s purchases of U.S. recovered paper by more than 1 million mt, beat South Korea’s U.S. ferrous scrap imports by nearly 395,000 mt, and bested India’s consumption of U.S. copper scrap by nearly 285,000 mt.
Canada, which in recent years had been the biggest buyer of U.S. aluminum scrap exports, did give China a run for its renminbi (the Chinese currency) in this category in 2002, though in the end it surrendered the top spot by less than 1,400 mt.
Zinc was the only category of U.S. scrap in which China was not the leading buyer last year, though it only lost out to India by less than 20 mt. Still, China did account for 35.4 percent of total zinc scrap exports, and early numbers for January 2003 show China pulling ahead this year.
Paper’s Prowess, Metals’ Moves
In addition to finding a major new destination, U.S. scrap exports in the past 12 years have seen a major rise and fall in the demand for certain commodities. In the early 1990s, American scrap exports were mostly metal and primarily ferrous. In 1991, for example, scrap metal accounted for 10.4 million mt of the 17 million mt exported—or more than 61 percent—with recovered paper representing the other 39 percent. Ferrous scrap was the largest single commodity, accounting for 86 percent of all scrap metal exports and nearly 53 percent of total exports.
By 2002, however, overall scrap metal shipments had fallen to just under 50 percent of total exports, with ferrous scrap accounting for 77 percent within the metal categories and about 38 percent of the total. Moreover, in sheer numbers, U.S. exporters actually shipped out slightly less scrap metal last year than they did in 1991 and more than 1 million mt less than they shipped in 1995’s export surge.
As metals fell, recovered paper rose. In fact, the entire 21-percent growth in U.S. scrap exports since 1991 can be attributed to recovered fiber, which last year accounted for just over 50 percent of total U.S. scrap exports. What’s more, paper has recently claimed an even greater share of those exports, hitting close to 55 percent in 1999 and surpassing 59 percent in 2000 (both years with particularly low ferrous shipments).
Within the once-dominant metal categories, the decline of ferrous scrap has been countered somewhat by rising exports in some nonferrous categories. Exports of nickel/stainless/alloy scrap, for instance, have more than doubled since 1991, rising from about 515,000 mt to more than 1.07 million mt last year. Likewise, exports of aluminum, copper, and lead scrap have all increased in the past 12 years—even since 1995’s export boom—though each commodity still represents only a small share of total American scrap exports. The one exception is zinc scrap, which has suffered a fairly steady decline in exports for the past 12 years.
Tracking the Trends
Scrap exports shrink or grow based on many factors, including domestic demand, the strength of the U.S. dollar, foreign currency fluctuations, and the industrial development of America’s trading partners. Take Japan, for instance. Once a major importer of U.S. ferrous scrap, Japan developed its steel industry, began generating its own domestic scrap supply, and is now a net exporter.
“It’s difficult to generalize about trade flows,” says one U.S. exporter, other than to note that the changing patterns “remind us that scrap is traded in a global marketplace.”
As a result, he says, “it isn’t useful or helpful to think of scrap too provincially—to say, ‘Well, this is U.S. scrap or that is European scrap or Chinese scrap’—because one country or part of the world can be ‘up’ and another ‘down,’ then that can reverse two or three years later, and scrap flows will adjust.”
Following is a commodity-by-commodity discussion of some of the recent trends shaping these shifting scrap flows:
Paper: In the early 1990s, South Korea and Taiwan vied for the crown as America’s largest export market for recovered paper. By mid-decade, Canada and Mexico had taken the lead. China began challenging Canada’s primacy in 2000 and took command in 2001 by buying nearly 1.3 million mt more than Canada’s 2 million mt that year. Notably, China has increased its purchases of U.S. scrap paper every year since 1993, and it looks as if that trend will continue this year. This January, in fact, China bought almost 56 percent more U.S. recovered fiber than it did in January 2002.
Canada’s imports of American scrap paper remain a strong second, though they have fallen from highs in 1995 and 2000 of more than 2.6 million and 2.5 million mt, respectively. Among other big buyers, Mexico and South Korea have hovered around 1 million mt for each of the past several years, while India has shown impressive growth that took it past 500,000 mt in both 2000 and 2001 before slipping back somewhat last year. Taiwan’s share has dropped considerably, while Indonesia and Thailand are growing.
Though U.S. scrap paper exports have yet to beat 1995’s record shipments of nearly 10.4 million mt, the outlook is good. The American Forest & Paper Association (Washington, D.C.), for one, predicts a 50-percent increase in U.S. scrap paper exports in the first six years of this decade. Mixed paper is coming on especially strong, having surpassed OCC—the traditional export-market leader—in the past two years. China is credited with much of mixed paper’s export strength, having built its new paper mills to handle higher levels of this material, notes analyst Bill Moore of Moore & Associates (Atlanta).
Some traders have expressed concerns about competition from Japanese and European scrap paper heading to the Chinese market—especially given a growing perception of contaminants in U.S. recovered fiber, in part because of residential single-stream collection programs. In Moore’s view, Japan can’t greatly increase its exports. Also, he says, the overall fiber quality and high yields of American scrap paper will easily overcome the relatively short fibers and low yields of European scrap paper. Given China’s own undeveloped collection system, Moore states, “the U.S. recovered paper export business, looking forward, looks pretty good.”
Iron and Steel: In the first half of the 1990s, South Korea, Turkey, and Canada were the top three importers of U.S. ferrous scrap, which enjoyed overall shipments of 8 million to 9 million mt annually. Since then, U.S. ferrous exports have struggled, falling by 2000 to about half their 1995 levels before climbing back to just under 8 million mt last year. Along the way, South Korea dropped out of its leading spot, being replaced by China; Turkey fell to a distant fifth place after previously buying well over 1 million mt a year in the first half of the 1990s (then essentially dropping out of the U.S. ferrous scrap market entirely for 1999 and 2000); while Canada alternated with Mexico for third and fourth places.
Again, it was China that showed the most impressive and consistent growth in this period, increasing its imports of U.S. ferrous scrap from about 18,000 mt in 1991 to more than 2.3 million mt last year—a remarkable 13,000-percent increase. This number is somewhat skewed, however, given that China’s U.S. ferrous scrap purchases increased tenfold from 1991 to 1992, then stayed well below 500,000 mt annually for the rest of the 1990s, until suddenly doubling from 1999 to 2000 and then tripling from 2000 to 2001. Even so, one American exporter says that the growth of scrap-hungry electric-arc furnaces here at home and increasing competition from foreign scrap generators around the world will keep U.S. ferrous scrap exports below historic peaks.
Aluminum: Chinese demand, good freight rates, and a U.S. dollar that has fallen against the euro are all cited as reasons for rising aluminum scrap exports, which have increased more than 34 percent since 1991 and more than 44 percent since 1995. The major buyers have shifted significantly, with Japan—the biggest buyer of U.S. aluminum scrap as the 1990s began—falling to sixth place in 2002, narrowly behind Taiwan.
Conversely, Canada and China grew steadily as buyers in the past 12 years, with Canada emerging as the largest importer in the late 1990s and early into the new century. Since peaking in 2000, however, Canada has dropped back, losing its leading spot to China last year. Still, Canadian demand grew more than 375 percent between 1991 and 2002.
That increase pales in comparison to China’s demand for U.S. aluminum scrap, which soared an astonishing 6,000 percent. Notably, China has increased its purchases of lower-grade, unprocessed aluminum scrap, matching its similar trend in copper scrap, one exporter notes. Mexican purchases of U.S. aluminum scrap have also grown over much of the past 12 years, with some fluctuations, while Taiwanese buying has trended lower.
Copper: The story of U.S. copper scrap exports in the past 12 years is one of growing demand from China and falling consumption just about everywhere else. Indeed, of America’s major export markets for copper scrap, only China and India took more material last year than they took 12 years ago. India, however, remains a distant second to China, buying only one-seventh as much U.S. secondary copper as the Middle Kingdom. Moreover, China is the only major buyer to surpass its 1995 purchases, following a major expansion that saw its imports of U.S. copper scrap more than double from 1999 to 2000. In 2001, China bought more than 56 percent of all U.S. copper scrap exports, while last year its purchases exceeded 58 percent. Con-versely, Canada—which has faced an extended labor strike at one major copper smelter and the closure of another—saw its imports of U.S. copper scrap steadily climb in the first half of the 1990s and then reverse as the decade ended, placing it in third place behind India in 2002.
China’s appetite for copper scrap has long included the lower, unprocessed grades and has been boosted by the decline of America’s domestic copper smelting industry, one exporter says. In addition, some of the same investors who financed copper smelters in previous Asian scrap-importing countries are now opening new factories in China, fueling that country’s expansion in manufacturing, the exporter explains.
Nickel/Stainless Steel/Alloys: U.S. exports of nickel, stainless steel, and alloys have grown fairly steadily in the past 12 years, more than doubling from about 515,000 mt in 1991 to nearly 1.08 million mt last year. As with other scrap commodities, China’s buying surged as the new century began, rising 331 percent from 1999 to 2000. Though China’s numbers have fluctuated somewhat in the past two years, it remains firmly in first place over Canada, whose imports of U.S. nickel, stainless steel, and alloys have declined each year since hitting a 12-year peak of more than 500,000 mt in 1997.
In the first half of the 1990s, Mexico and Japan followed Canada as the major markets for exported U.S. nickel, stainless, and alloy scrap. But while Mexico has remained a relatively large buyer, Japan has slid below the top-five ranking.
Within this category, alloy scrap holds the largest share, usually representing well over 60 percent of the total for most of the last seven years. China’s share of U.S. alloy scrap expanded quickly after 1999. Its role in the stainless category has also grown, though it remains in third place behind Taiwan and South Korea. One industry watcher, though, sees China eventually becoming the dominant buyer of U.S. stainless scrap, especially when several new mills begin production in earnest over the next several years. China could face stiffer competition for U.S. stainless scrap, however, once the North American Stainless mill in Ghent, Ky.—owned by Spain’s Acerinox Group—reaches its melt capacity of 800,000 mt annually.
Lead: Though China dominated the U.S. lead scrap export market last year—buying more than 50 percent of the total—its current position represents only a two-year surge. As recently as 2000, China bought only 4.3 percent of U.S. lead scrap exports. Canada was the leading importer of U.S. lead scrap throughout the 1990s, often accounting for more than 90 percent of the total. After hitting a 12-year peak in 1999, however, Canada’s purchases have dropped more than 62 percent, though it remains a solid second to China.
Overall, U.S. lead scrap exports are up more than 24 percent since 1991, albeit down roughly 9 percent from the 1997 high. If Canada can maintain its status and if overall shipments remain strong, U.S. lead scrap exporters could enjoy something that was almost unknown for the past 12 years—two major buyers.
Zinc: The U.S. export market for zinc scrap is unique in three key ways—it’s the only category that China did not lead outright last year, the only category in which the top-five buyers are in Asia, and the only category in which exports have declined dramatically in the past 12 years.
Indeed, recent American exports of zinc scrap peaked in 1991 and have since declined almost 69 percent. The decline has been even more precipitous among once-major buyers: Taiwan, for instance, dominated the category at one time, buying more than 76 percent of exported U.S. zinc scrap in 1991. As recently as 2000, Taiwan still accounted for more than 50 percent of such exports. But in the last two years, Taiwan’s purchases plummeted more than 82 percent, leaving it in third place behind India—whose own purchases have fluctuated somewhat—and a steadily growing, recently surging China.
Export Expectations
Does China’s current dominance of the U.S. scrap export market create wonderful opportunities or pose a potential problem—a too-many-eggs-in-one-basket scenario? At least one paper exporter has raised that question, while others see few alternatives.
In China, the officially Communist system has at least proven itself more flexible and open to development than say, India, a democratic-capitalist country whose economy has been too tightly controlled for the kind of growth that China has enjoyed, says one nonferrous exporter, who adds—“and nobody else has a billion people who can work cheap.”
Indeed, many Americans trying to sell scrap overseas probably echo the words of the ferrous exporter who exclaims “Thank God!” for China’s current role. “Everything revolves around China,” this exporter says, noting that even the U.S. ferrous scrap that Turkey has started to buy again—after briefly relying on European scrap—ends up as billets that are shipped to China.
Another exporter concedes that anyone who sells anything would prefer to have many buyers rather than a single dominant one. “But demand is what it is,” he says, “and you have to react to it.” •
Robert L. Reid is managing editor of Scrap.
A review of U.S. scrap exports over the past 12 years underscores the growing importance of one buyer (China) and one commodity (recovered paper), as well as key shifts among metals.