November/December 2012
Taiwan was a destination for low-grade nonferrous scrap decades before mainland China. As the country’s manufacturing sector, work force, and environmental laws matured, the scrap industry kept pace. Now some believe both low-grade and high-grade scrap are essential to Taiwan’s future.
By Adam Minter
It’s a hot August afternoon in Tainan, Taiwan, and the bales of clean copper at Chang Xin Metal Co. glow bright orange in the burning sun. A very large, very typical Taiwanese-owned and -operated copper recycling company, Chang Xin has two facilities in Taiwan, a plant in Indonesia, and three very large plants in mainland China. Casa Wang, a manager at this facility, leads me through the property with Melissa Tsai, general manager of Green Fenix (Taipei, Taiwan), a trading company that does business with Chang Xin. Casa tells me this facility alone imports about 2,000 mt of clean copper wire (ISRI specs Berry and Barley) per month, depending on market conditions. Based on Taiwanese import figures, that’s roughly 2 percent of Taiwan’s total scrap copper imports in a given year. From June 2011 to June 2012, for example, Taiwan imported 97,194 mt of scrap copper, down slightly from the 99,153 mt it imported in that period from 2009 to 2010—a decline attributable to a mid-2012 swoon in global copper demand. Chang Xin trades some of the material it receives; the remainder it melts in its on-site rod mill, which produces roughly 950 mt of high-quality, low-oxygen copper rod every month for Taiwan’s manufacturers.
It’s a high-end product made from a high-end grade of scrap—material that’s not much in demand in mainland China, Asia’s biggest scrap import market. But high-grade materials are the only ones traders can import competitively here in developed Taiwan, where labor and environmental costs far exceed those of its developing neighbors. This has led Taiwan’s scrap industry to invest heavily in technology and move up the value chain, joining Singapore, South Korea, and Japan in seeking and processing high-grade scrap in a manner that matches—and even sets—international standards.
It wasn’t always this way, of course. Until the early 1990s, Taiwan was the world’s leading importer of low-grade nonferrous scrap. That metal supplied a labor-intensive manufacturing sector whose products were rarely respected for their quality. But in the early 1990s, pressure from higher labor costs and environmental crackdowns shifted such manufacturing to mainland China. Over the past 20 years, Taiwan has transformed itself into a high-tech manufacturing colossus that needs significant volumes of high-end scrap to produce goods that range from golf clubs to smartphones, and its scrap industry has grown to meet those needs. Those who understand why and how the situation has changed are finding a real opportunity to prosper.
At Chang Xin’s rod mill, Casa leads me to stacks of copper foil procured from an electronics manufacturer with which the company has a tolling arrangement. Chang Xin will transform the foil into a rod of exceptional purity that can go back into the electronics manufacturing process. I see stacks of copper cathodes, which the company manufactures in one of its Chinese plants, and bales of Berry and Barley on a platform above the factory floor, all waiting for a similar transformation. Next door, in a warehouse filled with so much clean copper wire that forklifts push it around on the floor like hay in a farm field, we pause beside several bales of clean wire at the back of the warehouse. Some of it, I notice, is dark and corroded. Casa clucks her tongue at it. “The material comes from Australia. But it’s not to the spec, so we’ll return it.” Taiwan’s importers adhere to ISRI’s specs with rigor, unlike their counterparts in some other parts of Asia. In mainland China, for example, those bales would have a ready buyer, perhaps at a discount. But in Taiwan—this modern, technologically savvy Taiwan—they’re too contaminated to interest serious processors. Quality and those who can supply it are at a premium here.
Discounting the Australian wire, the facility still has between 600 and 700 mt of clean copper in inventory, Casa says. Tsai tells me she might send two or three loads of mill Berry scrap to this facility each month. It is by no means her largest market—Green Fenix handles hundreds of containers a month, mostly mixed metals, which go primarily to China—but it is a favorite one. “Of course we do in Taiwan what we can,” she tells me. “But the Chinese market is strong, and Taiwan always gets the leftovers.”
I’ll learn later that at least one industry leader thinks it’s time for Taiwan to get more than just the leftovers.
The Pioneer
Sixteen floors above downtown Taipei are the offices of Harlee/Gleemonsky Enterprises, one of Taiwan’s oldest and most respected scrap metal trading houses. The office of Robert Lee, the company’s founder, president, and owner, has a view across the city, into the green foothills and mountains surrounding this highly developed metropolis. Lee offers me a seat at a table with his son, Clement, general manager of Harlee/Gleemonsky, who does the bulk of the firm’s travel and trade these days. Together, the two men and their firm embody the modern history of Taiwan’s scrap trade.
“I have been doing this a long time,” Robert says. Back in the 1960s, he originally trained to be an English teacher, he explains, even receiving government certification. But he had other ideas about how to use his impressive and rare English skills. “After I received the license from the Ministry of Education, I just [threw] it into the drawer, into my desk, and looked into the newspaper to find a business career,” he says with a chuckle. One of the ads he answered was from a Japanese firm looking for an English speaker who could help it source scrap for Taiwan in the English-speaking world.
At the time, Taiwan’s scrap industry was already two decades old, born from the need to clear hundreds of sunken and grounded World War II-era ships from the island’s ports and waterways. The metals recovered from those ships supplied Taiwan’s postwar economic boom. By the 1960s, the country’s shipbreakers had developed enough expertise—and Taiwan had enough metal demand—to justify importing low-grade mixed metal scrap such as insulated wire, appliances, electronics, and other items too difficult and expensive to dismantle and process in the developed world. According to data aggregated by Tadayoshi Terao, a researcher in the Environment and Resources Studies Group at the Institute of Developing Economies (Tokyo), in 1974 Taiwan’s shipbreaking industry employed 50,000 people. Likewise, by 1983 the mixed metal scrap industry employed between 30,000 and 40,000 people. During its peak years, in the mid-1980s, Taiwan’s mixed metal scrap business was processing an estimated 700,000 mt of material a year, 200,000 mt of which was generated domestically. “These two businesses [could] meet the metal demand of the whole country at this time,” Robert says. “They are the source.” Taiwan’s nonferrous scrap processing industry was hardly a paragon of green virtue, however. Yards routinely used burning to separate copper cable from its insulation, and shipbreaking was conducted without environmental controls on the island’s beaches.
In 1980, after a three-year stint running the Taiwanese ferrous business for Philipp Bros. (New York), which then was one of the largest U.S. scrap trading firms, Robert formed his own trading company. From the beginning of Harlee/Gleemonsky, he made a special effort to focus on material that meets ReMA specifications for two reasons, he says. First, even in the early 1980s, it was obvious that the government and the people wouldn’t tolerate pollution from low-tech scrap processing forever. Sooner or later it would end, and Taiwan would have to take a different approach to secondary metals. But equally important, if not more so, he says, was the evolution of Taiwanese industry from manufacturing cheap, shoddy products to producing high-tech gadgets and components that require high-purity copper. Copper smelters began to demand higher-quality metals from their agents and other suppliers. Insulated copper wire that’s been burnt doesn’t make the grade, but clean copper scrap, like ReMA specs Barley and Berry, does. In fact, in some cases, clean copper scrap makes better new copper than cathode, Robert says. For example, copper foil, a key conducting and insulating material in sensitive electrical components, is best manufactured from No. 1 copper wire, or Barley. “Copper foil producers need the Barley very much,” Robert explains. “If they put in copper cathode, purity is very high, but the melting speed is too slow. But Barley scrap ... the melting speed is good enough for their production. So [for] copper foil production, they only use Barley; they don’t use cathode.”
As Robert predicted, by the late 1980s Taiwan had grown impatient with polluting methods of scrap recycling. Starting in 1989, a government intent on cleaning up the industry frequently interrupted the scrap trade with bans on imports of end-of-life ships for shipbreaking and on mixed metals. Still, some processors were defiant. By 1993, the government realized it would be easier just to shut down the importing of ships and mixed scrap altogether than try to regulate individual yards, so that’s what it did.
Harlee/Gleemonsky was well-positioned to survive these government crackdowns in the late 1980s and early 1990s, Robert says. By then, many of his customers had already shifted to higher grades of scrap and even ingots. Those who didn’t either went out of business or relocated their businesses to south China, and he supplied them there. Today, he tells me, 70 to 80 percent of the company’s considerable scrap volume—mostly shredded material—flows into mainland China; the remainder goes to Taiwan. That’s still a remarkable amount when you consider the vast difference in size between the two.
The Tin Man
Many of Taiwan’s best scrap processors—and scrap importers—are comfortably settled in expensive niches. Take, for example, Rui Da Hung Technology (Taoyuan, Taiwan), the country’s only tin recycler. It has two facilities, each roughly one hour from Taipei. The first, in the Guangyin Industrial Park, is almost invisible from the road, hidden behind a steep fence and gate that opens at our arrival. Inside, greeting us is the gregarious Chen Kuei-Hung, president and co-founder of this 17-year-old company that produces about 2,000 mt of tin a year from a mix of imports and domestic purchases. The mix varies, as does the volume (due to varying recoveries), but on average the company imports about 70 percent of its raw material, Chen says.
He and a member of his technical staff lead Melissa Tsai; her brother, Morris, also with Green Fenix; Clement Lee; and me through a laboratory that’s testing toaster-sized electrolytic refineries for their ability to purify the tin scrap that Rui Da Hung collects from around Asia and the rest of the world. (Taiwan doesn’t maintain statistics on tin imports, exports, or domestic collections.) The sources vary: Significant proportions are solder dross from electronics manufacturers, printed circuitboards, and tin ore concentrates from mines. The scrap is valuable, and Rui Da Hung works to recover as much of it as possible. In the next room, Chen points to a spectrometer and a pile of silver-dollar-sized ingots refined in the lab, each marked with a batch number and purity percentage. Of the ones scattered on the workbench, all are marked either 99.98 or 99.97 percent.
Downstairs, Chen walks us through the rest of the 102,000-square-foot facility. The work taking place here “is mostly experimental,” he tells us, though the amount of activity taking place seems operational. We pass piles of refined cathode bricks in one room; in another room are sheets of tin ready to be placed into the refining pool. Around the corner is the refining pool itself: a raised tub roughly the size of a hotel swimming pool filled with rows of cathodes being plated with tin. It’s not a huge facility, but it’s one-of-a-kind in Taiwan, and that’s by design. Tin recycling and refining, like all refining, is a potentially polluting business, and the Taiwan Environmental Protection Administration (Taipei) has been very careful to restrict and supervise its activity. That Rui Da Hung has Taiwan’s only permit to refine tin is a tribute to the care it has taken—and the money it has spent.
From the experimental facility, we drive to an industrial park 30 minutes away, also in Taoyuan County. There, behind another high fence, is a three-story factory—Chen tells me it was once a Christmas tree factory his family owned. It, too, has a lab stacked with test ingots. Unlike the experimental facility, however, it also produces real ingots. On the third floor, we watch as two workers carefully pour the hot, recently refined tin into molds, creating ingots for Taiwanese customers, most notably printed circuitboard manufacturers seeking the purest tin possible.
As he leads us out to the parking lot, Chen tells us the company’s market share is growing. Once it produces another 1,000 mt a year, it will qualify for listing on the London Metal Exchange. A planned third plant should help the company compete against refiners in Belgium and China—his stiffest competition for scrap—and establish a bigger, technologically modern Asian footprint in this niche metal. But first he’ll need more scrap. “We’ll need to import, of course,” he says.
Taiwan’s Titanium
The next day, Clement, Melissa, Morris, and I ride south to Tainan, one of the two traditional centers of Taiwan’s mixed metal scrap trade. In the 1980s, most of the residents of Wanli Village, a district in the heart of Tainan, engaged in scrap processing, providing the town with a deep base of knowledge about scrap metals—and also a notoriously polluted environment. These days, though, the skies over Tainan are blue, and the industrial parks are sleepy.
Clement directs our driver to a nearly 200,000-square-foot scrapyard across the street from Tainan’s airport. The location is important: Hsieh Yung Metal Co. specializes in the recycling of titanium, high-temperature alloys, and other specialized alloys and elements it purchases from manufacturers in Taiwan and around the Asia-Pacific region. As we walk through his yard in the blistering mid-day sun, owner Lin Ching Nan stops to show us a stack of thick, pillow-sized sheets of titanium, each punched with multiple egg-shaped holes.
“Do you know what these are?” he asks. Melissa and I look at them, but we don’t know. Then Clement speaks up: “That’s golf club scrap.” Lin concurs. “Eighty percent of the world’s golf clubs are manufactured in Taiwan by just five companies,” he says, “but some are moving to China. So [the industry is] shrinking.”
Depending on market conditions, Lin purchases between 20 to 30 mt of titanium a month, making him a significant player in that market. There are no statistics available on Taiwan’s considerable domestic titanium generation, but the trade numbers are impressive. From June 2011 to June 2012, Taiwan imported 415 mt of titanium scrap, nearly 300 mt more than it did during the same period the previous year. As we walk through the yard, we see titanium clippings, turnings, and—in one corner—a 6-mt solid titanium condensing unit purchased from a chemical company. Hsieh Yung Metal Co. cuts and separates the scrap and returns much of it to the manufacturers. What it can’t return it exports to smelters in Japan and the United States. “For the titanium to be reused in aerospace [applications], it needs to be remelted in vacuum furnaces,” Lin explains. “Taiwan is too small to have these.” The exports, too, are impressive. According to Taiwanese government figures, the country exported 926 mt of titanium scrap in the June 2011 to June 2012 period, down 80 mt from that period in 2010-2011. More of that scrap is staying in Taiwan, Chen says.
We walk into a corner of the yard where two workers are busy cutting apart large, spiky, wheel-shaped scrap that I immediately recognize as having been obtained from aircraft engines. Lin points over his fence to a turf-covered bunker at the airport. “That’s the army’s section” of the airport, he explains. “We do a lot of business with them.” His workers separate the parts into alloys and prepare them for shipment to companies with the ability to handle them, such as aerospace manufacturers in the United States. Next to one barrel, he points to a pile of chopped-up spiky fragments. “Those come from the 80-13, an F-16 trainer,” he says. He takes me to the far side of the adjoining warehouse, where hundreds of plastic Supersacks hold sorted high-temp alloys and other exotic materials, awaiting shipment around Taiwan and the world. “Perhaps 50 percent of our business is aerospace; 30 percent is golf clubs,” Lin tells me. The remaining 20 percent is high-tech, and Lin takes particular pride in showing me fragments of pure germanium and other materials highly valued in semiconductor manufacturing. There is a recycler that can process these materials in Taiwan, he tells us, and that’s where he sends them.
Low-Grade Futures
Not all of Tainan’s scrapyards are repositories for rare elements and alloys. Just up the road, in a tightly packed industrial park where the lanes often are not much wider than the van in which we ride, we turn through the gates of The Thummd Co. and find ourselves looking at dozens of giant spools of aluminum conductor steel-reinforced cable, or ACSR, which the company received from a Taiwanese telecommunications company. As we leave the van, we watch a forklift pick up a spool and carry it into the warehouse to our left.
The owner of the yard, Chen Kuan Chun, walks out of the office to greet Melissa, with whom he’s been doing business for years, and he leads us into the warehouse. There, workers place the spool on what looks like an industrial-strength lazy susan and slowly unwind it into an alligator shear they use to chop it into 4-foot segments. They feed those segments into another shear that chops off just the ends, revealing the aluminum strands wrapped inside the thick steel ones. Finally, another worker places the exposed aluminum strands into a jerry-rigged wire stripper that rips them apart, leaving clean strands of steel and aluminum.
This type of low-grade processing is common in developing countries like China, India, and Indonesia, but it’s been all but unknown in recent years in Taiwan. In part, that’s because labor costs in Taiwan are at least twice those in China. According to Chen, he pays his employees the equivalent of nearly US$1,200 a month and provides an additional $50 a month in benefits. Currently, Chinese scrapyard labor costs top out around $500 a month. At the same time, China’s demand for low-grade scrap is simply much greater than Taiwan’s.
Little demand isn’t the same as no demand, however. Taiwan’s manufacturers need copper, and it doesn’t always have to be of the highest grade. The domestic supply of low-grade copper cable is shrinking—the country adopted fiber-optic cables decades ago—so the Thummd Co. and others are starting to import limited quantities of insulated copper. Taiwan’s EPA has allowed these imports since 2005, but due to the strong competition from China for low-grade metals, there hasn’t been much demand. The government sets a high bar for those interested in such imports, too: A company must have separate permits to import and to process, and it gets audited to show it’s operating at an approved level. The Thummd Co. has a license to process 2,400 mt a month currently, and it can acquire additional capacity if necessary.
To receive processing approval, a company must have a granulating line that segregates insulation from copper. At The Thummd Co., the granulator is packed into a sound-insulated box roughly the size of two mobile homes. Inside, a dry separation system uses air, primarily, to produce a chopped copper that Chen claims is 99.7-percent pure. On the day I visit, the plant is idle, slowed by the summer 2012 worldwide down market in copper. Still, Chen shows me bags of clean copper chops and, in a back storage area, bags of dust and other contaminants the system recovers. Meanwhile, a young employee sits beneath the idle plant and cuts apart connectors and other wire contaminants, separating steel from copper from plastic using little more than a pair of scissors and her bare hands.
Ken Chen, secretary general of the Formosa Association of Resource Recycling (Taipei), acknowledges that the quality of copper produced from cleaned insulated wire isn’t as high as that produced from higher grades. That’s why the association is pressing the government to approve Taiwan’s first copper refinery since the mid-1980s. Without it, Taiwan will continue to export much of its insulated wire and remain dependent on other countries for high-quality cathodes and other pure metal. The question is volume: Does Taiwan generate enough material on its own to justify such a facility? “We need to see if we are generating between 50,000 and 100,000 tons of scrap copper,” Chen says. “If we are, then we have the scale to support a copper refinery, and the government will support its construction.” This is a prudent move for the future, he adds. “We believe [that] in three to five years we won’t be able to send the low-grade scrap to China anymore, and [we’ll need to] bring it back. We will need something here. We will need to be able to close the loop on copper.”
This isn’t idle talk. The Formosa Association’s chair is a former administrator at the Taiwan EPA, and he and the association played a key role in convincing the government to allow the resumption of low-grade scrap imports into Taiwan, Chen says—even into the Dafa Industrial Park, once Taiwan’s most notorious—and, arguably, its most polluted—mixed metal scrap recycling zone. I’m anxious to see it.
In the 1980s and mid-1990s, Dafa, in Kaohsiung, Taiwan’s biggest and most important port, was the target of protests by residents upset by pollution and the refusal of enterprises within the government-designated zone to install a hazardous waste incinerator. Today the 928-acre park looks like the other modern industrial parks spread across Taiwan and other developed Southeast Asian nations. There’s no smoke or pollution visible at the entrance, just a concrete pylon painted blue and covered in signs pointing to the various companies in the zone.
Melissa, Clement, Morris, and I have arrived here with Melissa’s old friend Jeff Lu, general manager of Joymetal, a nonferrous trading and processing company Lu’s father founded during the boom years of Dafa and Taiwan’s scrap business. The company still processes zinc in mainland China and trades from Taiwan. Jeff is taking us to meet Ma Wen-Huang, the second-generation owner of Chin Zhong Metal Co. “Our fathers worked together for 40 years,” he says proudly.
We pull up beside yet another high fence, and standing outside of it is a compact, wiry man in his early 40s with a betel nut wedged in his left cheek. (This traditional snack has the stimulating effects of a double espresso.) He offers one to Jeff and one to Clement, then he leads us into his yard. For a moment, I think I’m on the mainland: A half-dozen workers sort through and separate cables and wires they’ve pulled from bales—both domestic and imported—stacked alongside the building. Twenty years ago, a facility such as this would have burned the cables to get the copper, which it would have sent to low-grade manufacturers. Today, though, workers run those cables and wires into Ma’s granulator—or they would, but the granulator is idle due to the poor market conditions during my visit. “If we can get cables, we’ll do 2,000 tons per month here,” he tells me. “But the market has to be right.”
At that, he jumps into a borrowed car, we jump into Jeff’s car, and we follow him around the corner to another plant. (He claims to have eight, but Jeff says there’s likely more.) This yard is bigger than the last one—perhaps three times its size—and displays an incredible inventory of low-grade mixed metal scrap. There are giant piles of ACSR of the sort that we saw at The Thummd Co.; it turns out that Ma is related to that company’s owners. Workers feed a different variety of ACSR through a cable stripper that recovers the single steel-supporting strand, which the company sells to farmers for fencing. The aluminum is chopped.
Around a corner, behind the big pile of ACSR, I find one man sitting on his haunches, using a hammer to break apart the ceramic skin of an electrical transformer part to get at the copper. Dafa was once filled with men doing this sort of low-tech manual processing, Jeff says, but higher labor prices doomed that business. Taiwanese companies now only process domestic scrap by hand; other material that requires manual separation goes to developing nations.
As labor costs in mainland China continue to rise and Taiwan’s scrap processing capacity grows, the Formosa Association’s Chen thinks it’s time to bring more of that work back to Taiwan. “We’re going to open [our borders] for other items,” he tells me during our interview. “Cable with grease [underground cable packed with petroleum jelly], cable with plastic [like PVC], that’s coming next.” The organization is currently lobbying the EPA to allow such imports, and when it does, Chen believes Taiwan will be a competitive destination for this material. He’s unapologetic about his desire to change the country’s industrial policy. “We want to close the loop in Taiwan first. And then, if we have the capacity, we will help other [countries], too.”
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for a range of publications. Bloomsbury Press is publishing his book about the scrap industry in fall 2013.
Taiwan was a destination for low-grade nonferrous scrap decades before mainland China. As the country’s manufacturing sector, work force, and environmental laws matured, the scrap industry kept pace. Now some believe both low-grade and high-grade scrap are essential to Taiwan’s future.