Fraying at the Edges

During a previous decade that experienced a telecommunications boom, the processing of scrap wire and cable seemed like a sensible niche for scrap recyclers to focus on.

Unfortunately, a double whammy has since buffeted this scrap recycling market. First, technology spending in the U.S. spiraled down severely starting in 2001. Around the same time, brokers representing a Chinese market that was hungrier for scrap wire and cable and the scrap copper yielded by the stream began competing vigorously for North American scrap wire.

The net impact has been a market characterized by a severe shortage of material to feed the wire and cable chopping lines created or upgraded in the 1990s.

A COPPER CRAVING.As a nation of 1 billion people rapidly modernizing its electrical and telecommunications infrastructure, China has demonstrated an insatiable hunger for copper.

On the one hand, this should be considered an opportunity for American scrap recyclers, especially those with established contacts in the export market.

But conversely, the strong buying activity of brokers representing China has resulted in wire and cable being purchased for overseas shipment before domestic processors can process it.

The result has been an acknowledged shortage of material for just about everyone in the domestic wire processing industry, particularly on the copper wire side. "Thank goodness for aluminum cable, or we might not be running any of our chopping lines right now," says one wire processor.

Fortunately for domestic processors, while China has a net deficit of copper melting stock relative to its needs, it does not have the same overall shortfall in aluminum.

But aluminum cable alone is not enough to feed the number of wire processing lines that exist in North America. Aluminum cable, most frequently used for long-distance electrical transmission lines, is a narrow part of the overall market, and it is dependent to a great extent on a strong domestic economy in need of a growing electrical grid.

The difficulties in the domestic wire processing industry can be seen clearly in the accompanying list of wire choppers, which last appeared in the fall of 2001, just before the domestic industry’s troubles began to set in. (See sidebar.)

CHOOSING SIDES. The dilemma faced by wire processors has garnered the attention of the Institute of Scrap Recycling Industries Inc. (ISRI), although choosing sides will not make everyone happy.

ISRI has alerted its members that it is seeking their input in terms of problems they have had when dealing with Chinese exporters and importers, such as skirting around value-added taxes and customs inspection procedures for scrap materials.

Although ISRI is doing so as part of an investigation by the U.S. Department of Commerce and the National Association of Manufacturers, the trade group has also asked for broader input before formulating positions on free and fair trade.

Not all recyclers are convinced that ISRI should be combating against what might be an inevitable tide of manufacturing capacity shifting to Asia.

Speaking at ISRI’s Commodity Roundtables event in Rosemont, Ill., in September, Marty Forman of Forman Metal Co., Milwaukee, says the battle is already over.

Saying he finds it "a shame" that metals industry jobs have been "sold down the river" the same way textiles jobs were a decade earlier, he remarked that both U.S. political parties rarely come together on a political issue, but did so for the NAFTA and GATT treaties. "When NAFTA and GATT were signed, the handwriting was on the wall," said Forman. "These were the final nails in the coffin of our government protecting semi-skilled U.S. jobs in a global marketplace of dirt cheap labor."

Forman continued by asking, "Should ISRI members deny themselves the benefits of a free global market in order to protect the few members in this room who turned out to have made a bad investment in domestic processing capability?

"All I need in the scrap business today to sell my goods at the highest price all over the world is a truck dock—and I have two truck docks," he continued. "And the sign on my dock doors reads ‘welcome’ in all languages."

Forman says exporting "is the single most profitable and expanding sector of my company, and I intend to fight back vigorously against anybody who wants to take it away from me."

The free trade arguments referred to by Forman go well beyond wire and cable processing and even the metals industry. The decisions that will ultimately signal whether there is a rebound in the offing for domestic wire processors will more likely be made in a variety of high-level venues, including global trade courts and forums; at the U.S. congress and cabinet levels; and in the voting booth, if Americans decide to make global trade policy a critical issue.

In the meantime, with Chinese brokers going directly to the dealers and generators that domestic wire processors have long called upon, the North American wire chopping industry will continue to deal with a fiercely competitive climate.