2003 International Trading Supplement - A Growing Appetite

Speaking at the 2003 Institute of Scrap Recycling Industries Inc. (ISRI) Annual Convention, Jianhua Yu had one key point to mention regarding scrap consumption in China.

The speaker, a consultant to the Metallurgical Council of the CCPIT [China Council for the Promotion of International Trade], noted that China may still be a developing nation, but "at the same time, China is also one of the largest steel producers in the world" already.

Every year since 1996, Yu pointed out, China has produced more than 100 million tons of steel. With further industrialization underway, the country’s appetite for scrap is likely to keep growing for another decade, although the scrap trade imbalance is not likely to last forever.

BUSY PORTS. Americans who frequently see the "Made in China" label or imprint on merchandise probably have a keen awareness that Chinese port workers are busy filling overseas containers with export shipments.

Less publicized (but quite well known to scrap recyclers) has been the growth in China’s importing of secondary raw materials—particularly scrap metal and paper.

As noted by paper industry consultant Bill Moore of Moore & Associates, Atlanta, speaking at the 2003 Paper Recycling Conference & Trade Show, China’s acceptance of scrap paper has increased steadily. (See "Ebb and Flow," in the August 2003 issue of Recycling Today.)

"Chinese destinations now absorb 34 percent of U.S. recovered fiber exports," noted Moore. "Five years ago this figure was 15 percent. China’s demand now places it number one—above Canada and Mexico—as the largest importer of U.S. recovered paper.

"In 2002, China imported 3.3 million metric tons of scrap paper from the U.S.," he continued. "Mills their have shown a preference for mixed paper, which is now imported from the U.S. at twice the rate of OCC. The growth has by no means reached its plateau, as more paper machines are scheduled to come online in the approaching financial quarters. These additional machines will continue to be fed in part by recovered fiber generated in the U.S."

Concluded Moore, "It is safe to say that Chinese mill buying has now driven the U.S. market for several years, and there is little to indicate that this influence will wane."

Conditions on in the metals recycling segment are shaping up similarly.

"Although China’s crude steel output has been number one in the world for five successive years, its present ferrous scrap stock has not yet entered into its expansion period," Yu told ISRI attendees in his March 2003 presentation.

A SLIDING SCALE. The current imbalance of steel production versus scrap availability in China will not last forever, if China’s development follows that of other industrialized nations.

Figures offered by CCPIT’s Yu show that only about one-third of China’s ferrous scrap needs are currently being met with obsolete scrap. Currently, China is producing vast amounts of steel, some of which is being exported, but much of which is going into vehicles, appliances, structures and other objects staying in China. When these objects begin reaching the end of their useful lives, Chinese steel mills will be able to tap into a deeper well of domestic scrap.

"Considering the experience of other industrialized countries, a large amount of domestic [obsolete] scrap will be generated in China 10 years later," Yu remarked.

The eventual appearance of more obsolete Chinese scrap will be needed to reverse a pattern that, for the past several years, has kept U.S. scrap processors and brokers busy. As Yu noted, "China has been ranking as the number one ferrous scrap importer in the world" for the past few years. CCPIT estimates that one-sixth of ferrous scrap melted by Chinese mills and foundries comes from overseas.

U.S. exporters have been among the foremost beneficiaries, according to CCPIT figures. In both 2001 and 2002, the U.S. ranked as the number one ferrous scrap exporter to China.

How the market changes from here depends on a number of factors, according to Yu. Among them: to what extent China’s economy continues to grow; how quickly obsolete scrap metal begins finding its way to Chinese scrap facilities and furnaces; and what percentage of China’s steelmaking takes place in electric arc furnaces (EAFs).

On this last point, Yu says China’s "10th Five-Year Plan" points to a preference toward EAF steelmaking. "Using more scrap in steelmaking conforms to the energy consumption policy for the iron and steel industry stated in the ‘10th Five-Year Plan,’" Yu told ISRI attendees.

Recycling ferrous scrap on a large scale is one of the aims of the plan, said Yu, along with replacing smaller, older furnaces, some of which are EAF furnaces, but most of which are basic oxygen furnaces (BOFs). "More EAF steelmaking capacity will be installed during the 10th Five-Year Plan," Yu stated. "For example, 10 50-ton direct current EAFs will be put into operation successively in Jiangsu province, which will lead to a 2 million-ton ferrous scrap gap," he remarked.

According to Yu, even BOFs in China "have a tendency to charge more and more ferrous scrap into hot metal" ever since "BOFs began to consume more ferrous scrap in order to save energy and materials and to reduce costs in recent years." If this trend continues, it will expand China’s scrap demand.

In another presentation at the ISRI annual convention, Ma Hongchang of China’s State Environmental Protection Administration (SEPA) noted that ferrous scrap is far from the only scrap metal flowing into China.

Other SEPA-approved secondary materials (considered "automatically registered" for importation) include scrap forms of copper, nickel, aluminum, zinc tin and tantalum, as well as alloyed steels.

According to the SEPA official, the government of China has been placing secondary commodities into different categories since the mid-1990s, with the result that several scrap metals categories have obtained the trade-friendlier registered status.

REACHING A PEAK. Despite the demand factors cited by Yu, he stated the CCPIT view that, "In the coming 10 years, a ferrous scrap consumption peak will occur in China."

This is not necessarily welcome news for North American scrap processors, who are increasingly getting used to an open-armed Chinese market looking and hungry for scrap metal.

The current time frame that Yu referred to as China’s "period of scanty resources" will not last forever. For now, though, exporters are rushing to fill the charge buckets of mills and foundries in China.

The author is editor of Recycling Today and can be contacted via e-mail at btaylor@RecyclingToday.com.