March/April 2009
After surviving wilting competition from Chinese scrap buyers, U.S. wire choppers navigate today's market maelstrom with some optimism about the future of their specialized business.
By Jim Fowler
The U.S. wire chopping business has always been a small, exclusive club, with fewer than 75 major players at its peak. Though some scrap sectors—most notably, automobile shredding—have been growing, this niche has dwindled steadily over the past decade, now totaling just 48 commercial scrap processing companies (see "North American Wire Choppers").
The industry did not shrink due to a decrease in supply. If anything, the volume of available scrap wire increased in the past decade, much of it drawn into the market by record copper and aluminum prices. No, the main reason for the industry's consolidation was simply China. By competing ferociously for North American wire, China changed the rule book for U.S. wire choppers and forced them to chart a new course forward. Those left standing are leaner, wiser, and more prepared for the long haul.
The Asian Invasion
To chop, or not to chop? That's the question many U.S. wire choppers were asking themselves about a decade ago, when buyers from Asian countries—primarily China—stormed the U.S. market in search of unprocessed insulated wire. The business had faced tests in the past, including strict federal regulations in the late 1980s and early 1990s on the nonmetallic residue of chopping, called tailings. But the business had never faced a competitive threat like this before.
Before long, Chinese and other Asian buyers had captured almost all of the dealer wire business—wire purchased from small scrapyards, utilities, manufacturers, and contractors. (Some U.S. choppers estimate that Chinese buyers claim as much as 80 percent to 90 percent of copper dealer wire during peak market times.) These new competitors also made inroads with more substantial generators of insulated wire scrap such as major utilities and large wire manufacturers. Then, as now, "the biggest factor in wire chopping in the United States, and probably in the world, is whether the Chinese are extremely aggressive in their purchase of insulated wire scrap or whether they back off," asserts Chris Lewon, vice president of Utah Metal Works (Salt Lake City).
Many U.S. choppers couldn't match the prices the Chinese buyers were paying, leading them to consolidate or shutter their processing lines. "A lot of wire choppers have gone out of business due to the Chinese competition," says Bernard Schilberg, CEO of Prime Materials Recovery (East Hartford, Conn.). "It was a substantial loss of [domestic] capacity, and I don't see it coming back."
Others adapted their operations and continued to chop. "We didn't succumb to the Chinese competition but instead found an opportunity in aluminum wire," says Jeff Mallin, president of Mallin Bros. Co. (Kansas City, Mo.), which has two aluminum chopping lines and one copper line. "We shifted our focus and probably now run more aluminum than copper wire. I think it was a good strategy. The Chinese don't seem to be as interested in aluminum wire."
Similarly, Joseph Simon & Sons (Tacoma, Wash.), which began chopping copper and aluminum wire in the mid-1980s, today runs only aluminum in its single chopping line. In the past five years, the company has exported all of its insulated copper wire to China. "The Chinese buyers who came into the market were paying higher prices for the unprocessed insulated copper wire than we could net out after chopping," says Mark Burley, the firm's president. "For us, the markets in China were too good to chop it here."
Another wire recycler, M. Lipsitz & Co. (Waco, Texas), began processing aluminum wire in 1965, then chopped both aluminum and copper for years. For the past five years, however, it has processed aluminum wire almost exclusively. Melvin Lipsitz, vice president of the company, says he doesn't foresee running copper wire again in the near future.
Still other U.S. choppers established niche markets built on close relationships with their scrap suppliers and consumers, which gave them a buffer against the Chinese competitors. Manitoba Corp. (Lancaster, N.Y.), for instance, began chopping aluminum wire in the mid-1970s but switched exclusively to No. 1 copper wire in the mid-1980s, which it continues to process in its two chopping lines. "Our suppliers and consumers have appreciated our philosophy of forging long-term relationships, which has helped us all remain competitive," says Brian Shine, president.
Down-Market Dynamics
The Chinese demand for wire has abated significantly due to last fall's economic meltdown, changing the market dynamics—at least temporarily—for U.S. wire recyclers. Though U.S. operators can still sell unprocessed copper wire today, "the price is one-third of what it was," Burley says.
On the plus side, the decline in competition has made more unprocessed wire available to domestic choppers. "It has become a bit easier to buy material since the Chinese began backing out of the market in 2008," says Toby Shine, president of Shine Bros. Corp. (Spencer, Iowa). Many scrap dealers who previously sold wire to China began calling Shine. "When the Chinese back out, the dealers want to come back to us," he says.
Likewise, Prime Materials Recovery, which has three wire chopping plants, is "getting a much greater amount of feedstock due to the lack of demand in China," Schilberg says. On the downside, he notes, "there is much less material being generated because of the overall slowdown in the U.S. economy."
Mike Rosen, president of Atlas Metal & Iron Corp. (Denver), concurs. "Although we are getting more phone calls from dealers due to the dry-up in Asia, that's offset because there is just less scrap available," he says. In his estimation, the volume of copper wire has declined by half, while the amount of aluminum wire has decreased 40 percent. "We're not seeing the flow of material coming through the door, especially since our business is based on a dealer network rather than an industrial base," he says.
The market downturn has forced most U.S. wire choppers to cut back their operating hours. Atlas Metal and Utah Metal Works, for instance, now operate their single chopping lines just one shift a day. "We had been running two shifts—and could probably justify two now—but we wanted to tighten up our operation," Lewon says.
Of course, when market conditions improve, Chinese buyers will step up their competition for U.S. scrap wire, which Schilberg views as a double-edged sword for domestic choppers. "They become a competitor on the one hand because they take away our feedstock," he notes, "but on the other hand, when there is good consumption in China, they'll buy some of our lower-grade finished goods." The key question for U.S. choppers, Lewon says, is: "If there is a huge demand again, whether it's China, India, Indonesia, Vietnam, or a combination thereof, can we be competitive in purchasing the raw material?"
Shifting Sales
The market decline has affected more than just the availability of scrap wire. For some, the downturn has changed where they sell their finished copper and aluminum chops.
Utah Metal Works, for one, used to sell two-thirds of its product domestically and the remainder internationally, but it now keeps everything stateside. "With the fluctuations we see in demand from China in particular and Asia at large, the percentages [exportÂed] can vary quite a bit," Lewon says. "While most of the aluminum chops stay domestic, it varies more with copper." M. Lipsitz & Co. usually ships its aluminum chops to both domestic and export markets. In recent months, though, the material has stayed "mostly domestic," Lipsitz says.
Some wire choppers sell most or all of their chops domestically, regardless of international market conditions. "We do our level best to ship domestically," Mallin says. "We're trying to support the manufacturing base of this country—our bread and butter—which gives us the opportunity to buy scrap. If we don't take care of them, we're shooting ourselves in the foot."
Manitoba has a similar philosophy. "If you turn your back on your consumers, you're not going to get them back," Brian Shine says. "We have a good reputation on the supply side and the consumer side of our business, so we feel like we're built to withstand these market ups and downs."
Shine Bros. also exports "very little." As Toby Shine explains, "We've developed good relationships with our domestic consumers. We've supported them, and they've supported us when it was almost impossible to get material. We support each other, and I don't see that changing."
In contrast, OmniSource historically has sold the vast majority of its aluminum and copper chops in North America, but it has made a "concerted effort" in recent years to establish markets overseas, especially in Asia, notes Dick Zampiello, the company's marketing manager.
Tweaking Technology
In contrast with the dramatic market changes in the wire chopping business, the technological side has changed little in the past decade, in part due to the vast exports of unprocessed wire. "The process of granulation, separation, and screening is basically the same," Mallin says. Lewon agrees, noting that "the ability to get the last bit of metal separated from the insulation was achieved to a large degree in the past 15 to 20 years, and I don't foresee any quantum leaps" in the future.
The most recent technological innovation came in the area of prechopping—the stage when scrap wire is cut into shorter lengths to improve its granulation. As Toby Shine recalls, "We all fought in the old days to figure out a way to preprocess copper, first trying alligator shears with conveyors. Once we found the solution with preprocessing equipment from France, the flows evened out and everything worked better. It made a significant difference."
Even without extensive equipment innovations, U.S. choppers seek to continually upgrade their systems to remain competitive. "Wire choppers have had to invest in technology to increase their efficiencies and productivity while decreasing their cost of production," Schilberg says.
In a related vein, some choppers have enhanced their systems through internal improvements. At Mallin Bros., for instance, "we've done proprietary things that we've been working on for a few years to get a more consistent throughput and increase capacity," Mallin says.
A Pain in the Tailings
Aside from market competition, the biggest ongoing challenge for U.S. wire choppers can be summed up in one word: tailings. Tailings are the nonmetallic materials from the wire chopping process, primarily the plastic and rubber insulation. "I think every chopper in the world will tell you tailings are a challenge," Mallin says.
Toby Shine is one chopper who says he has spent "tons of money" seeking recycling and reuse options for tailings—"and it's still a challenge." A big part of the problem for him, he explains, is that his company runs commingled dealer wire, which includes various types of insulation. "If you're running identical industrial insulated wire, you stand a chance of marketing the tailings, but commingled is tough," he says.
Atlas Metal is in the same boat. "Since we process dealer wire, we don't get a homogeneous product going in," Rosen says. "There are times when we sell the tailings, but generally we landfill the material."
M. Lipsitz & Co.'s tailings are predominantly a cross-linked polyethylene product. "We've attempted to sell it," Lipsitz says, "but there haven't been any major consistent markets. At times we landfill it, and other times we find a home for it. We're paid a small amount for the material, plus we don't have to pay to landfill it."
Mallin Bros. has had some success finding homes for specific streams of PVC tailings. There are buyers for that material at a nominal price, Mallin says, but items such as rubber and cross-linked polyethylene are more difficult. "We landfill some and some has gone to a cement kiln that burns it as fuel," he notes. Every time the company finds a promising solution, however, its product mix changes, "so we're not always processing the same type of material all of the time," he says. Sometimes the company even sorts incoming wire to create a load with the same insulation, but that process doesn't always make economic sense. "It depends on how much labor and effort is required," Mallin notes.
Prime Materials Recovery is unique in that it recycles 100 percent of its tailings in proprietary applications, Schilberg says. "We have polymer recycling lines at all of our chopping operations," he says, adding that the firm finds "beneficial use for our tailings, the majority of which are revenue-producing. Our strategic plan is to invest more energy into this side of the business." In Schilberg's view, the biggest changes to come in wire chopping will be finding additional uses for tailings.
Zampiello also believes that tailings will "absolutely" find a home. Today's tailings are much cleaner than tailings in the past, he says, thanks to more efficient separation equipment. This cleanliness has increased "the potential of that item to be sold for a more upscale secondary plastic use," he says. OmniSource is focusing "more and more on that side of the business and has substantially minimized the plastics going to the landfill," he says.
A Wired Future
Though the number of U.S. wire choppers has declined in the past decade, many wire recyclers believe the business still has excess processing capacity—up to 25 percent more than it needs, one processor estimates. Given that situation, Lewon says, the future viability of certain wire choppers may rest on whether they can compete in their specific locations—that is, will the availability of infeed justify a wire chopping line?
Wire choppers could face another challenge in the form of tighter environmental regulations. "You can't count out environmental issues with the residues and insulation," Lewon asserts. He wonders whether U.S. choppers have done their homework in this regard—"or will something come out of the blue as the next big toxicity issue?"
Lipsitz expects that U.S. choppers increasingly will have to deal in other currencies against the dollar. "It's an arbitrage with the metal representing the currency," he explains. "As the dollar increases or decreases, it makes our products more acceptable to either the export or domestic market." In this situation, choppers must continually adjust their pricing to market their products. "That adjustment includes the considerations of the value of the U.S. dollar compared to the consumers' currency," he says. "Further cost items to consider are the freight, insurance, a premium or discount on the competing metal if imported or exported, terms of payment, and specification requirements. All of these factors, and others, are part of the decision process to determine the marketability of our products."
Despite these challenges, many U.S. choppers are optimistic about their niche business. "I see it as a long-term growing business," Mallin says, basing his rosy view largely on the potential for huge growth in the energy sector. "With the potential for alternative energy sources, there's so much infrastructure this country needs to develop for power distribution," he explains. "Wire will have to be manufactured and installed to accomplish that. In addition, existing lines will have to be replaced regularly, which will also generate scrap."
Lewon agrees. "The country needs to make substantial upgrades in its infrastructure, and that comes from transmission lines to the power sources," he says. "We're at a critical juncture, and I think that material—primarily aluminum in transmission lines—is going to start flowing."
Others find encouragement in the growing use of insulated wire around the world—in everything from buildings to infrastructure projects to electronic products—which will provide a steady flow of scrap to chopping operations. The expanded use of electronics in automobiles over the past two decades, for example, has boosted the copper content per vehicle from about 28 pounds in the early 1980s to almost 40 pounds today, according to CRU (London). Another example is the Boeing 787 Dreamliner, which contains 53 miles—or 2,000 pounds—of copper per aircraft in insulated wire, Zampiello calculates. Even threats to the wire market, such as WiFi and fiber optics, haven't wreaked any serious harm worldwide.
The economic collapse even has potential long-term benefits for domestic wire processors, if more of the wire that previously headed overseas stays in the United States due to contract cancellations by international scrap buyers. "We think that will be an opportunity for us," says Brian Shine, "because dealers are going to be looking for more domestic stability, and that may level the playing field again."
Mike Rosen of Atlas Metal echoes that sentiment, asking, "How can we as scrap dealers trust the Asian market to be there? What happens the next time there's a collapse in the market?" In contrast to international buyers, he says, who can be here today but gone tomorrow, U.S. wire choppers offer the reliability of being "here every day. … I think the Asian market, and the lack of trust we have in that market, is the silver lining for wire choppers." •
Jim Fowler is retired publisher and editorial director of Scrap.
After surviving wilting competition from Chinese scrap buyers, U.S. wire choppers navigate today's market maelstrom with some optimism about the future of their specialized business.