Shaken not stirred

Politicians all the way at the top in the United States and Mexico have had strong words for what they perceive to be unfairness in the commercial trading relationship between the two nations.

Whether it’s former U.S. President Donald Trump resetting North America’s trade agreement or Mexican President Andrés Manuel López Obrador decrying exploitation by his larger neighbor, recyclers along the U.S.-Mexico border have had reason to feel nervous about cross-border relations.

This autumn, the López Obrador administration in Mexico floated the idea of a temporary scrap export ban as an anti-inflationary measure.

As of late this year, statistics and comments from recyclers in the region seem to indicate (the proposed export ban notwithstanding) neither a new treaty nor a partially constructed border fence has been able to deter buyers and sellers of scrap from finding each other across the national frontier.

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Regional cooperation

The reputation of scrap traders—and they would argue their survival—depends on finding the most appropriate market with favorable cost structures for a secondary commodity grade. Proximity can be a plus, and, through much of North American history, the southern or northern borders of the U.S. were not a critical variable in the proximity factoring.

Tariffs and other trade impediments between the U.S. and Mexico can change that dynamic, and the political rhetoric has at times been accompanied by tariffs (such as for finished steel and aluminum in the past several years).

That turmoil seems not to have trickled down in a big way to scrap materials. One recycler, however, says tax laws within Mexico could be affecting cross-border flows of scrap.

“The majority of the material that we purchase in Mexico today leaves the country,” says Patrick Merrick, president of El Paso, Texas-based W. Silver Recycling Inc. “Ferrous products are typically coming back to the U.S., and nonferrous products are coming back to the U.S. as well as heading overseas.”

Although Mexico has its own ferrous and nonferrous scrap melting facilities, those destinations are not always easy to reach. Additionally, Merrick says policies pertaining to the United States- Mexico-Canada Agreement (USMCA)— especially within the maquiladora border factory region—can favor export.

“We are seeing more incentive for material to leave the country, particularly USMCA material that is on temporary import status, due to the significant cost of nationalizing the material and inefficient Mexican tax laws,” he says.

Scrap Metal Services LLC (SMS) is based in Illinois but has sizable operations in the Rio Grande Valley region of Texas, including a ship recycling facility. SMS President Jeremy Kirchin says his company’s trade over the border is minimal but runs in both directions.

“We buy only around 150 tons per month from Mexico, which is delivered to us; we do not collect,” he says. “We sell around 4,000 to 5,000 tons of scrap to Mexico monthly, but we have sold as much as 11,000 tons in the past.”

A Midwestern U.S. company with a more sizable presence in Mexico is Indiana-based electric arc furnace (EAF) steelmaker Steel Dynamics Inc. (SDI). That company, which also operates the OmniSource network of scrap yards in the U.S., has made some high-profile investments in the Mexican scrap industry.

When SDI decided to build an EAF flat-rolled steel mill in Sinton, Texas, the company also chose to seek steady scrap supplies in the region, according to its CEO Mark D. Millett and Chief Financial Officer Theresa E. Wagler.

In 2020, SDI purchased Monterrey, Mexico-based Zimmer S.A. de C.V., which operated six scrap processing facilities positioned near high-volume industrial scrap sources throughout central and northern Mexico as well as several third-party scrap processing locations.

The combined Zimmer facilities in Mexico shipped approximately 500,000 tons of scrap in 2020 and had an estimated processing capacity of 2 million tons annually.

The following year, Millett said Zimmer would “provide a critical source of prime scrap supply” to the EAF mill SDI was constructing in Sinton. Wagler told Recycling Today earlier this year that SDI is working to create what she calls an “almost perfect closed-loop system” at its Sinton mill. Several manufacturers of finished products and components in the U.S. and Mexico have agreed to supply their generated scrap directly to the mill, eliminating carbon emissions because of the short journey.

By that time, SDI had increased its footprint in the Mexican scrap market with its purchase of Monterrey-based multilocation scrap processing firm Roca Acero. (See sidebar, “More than a toe in the water,” above.)

The activities of SDI, SMS and W. Silver are part of a larger pattern that sees regular volumes of ferrous and nonferrous scrap flowing across the U.S.- Mexico border.

Considerable volume

The volumes of scrap shipped between the U.S and Mexico, as measured by U.S. Census Bureau data aggregated by the U.S. Geological Survey, can vary from year to year. Factors causing these changes can be political but are more likely to pertain to scrap availability and demand.

In the first seven months of this year, buyers in Mexico took delivery of 1.78 million metric tons of ferrous scrap shipped from the U.S. That represents a 7.8 percent drop from the 1.93 million metric tons shipped in the same time frame in 2021.

In the first seven months of 2021, Mexico edged out Turkey to be the No. 1 destination for ferrous scrap exported from the U.S. In that time frame this year, Turkey regained its long-held No. 1 position, though Mexico still had five months to try to close the gap.

In the other direction, the ferrous scrap volume moving south to north is quite a bit smaller. In the first seven months of 2021, 320,000 metric tons moved north from Mexico to the U.S. In the same time frame this year, however, the volume rose by 22.8 percent to 393,000 metric tons. (Observers can wonder to what extent SDI’s Sinton mill coming online has to do with this and whether the tax situation Merrick mentioned has played a role.)

In the aluminum sector, buyers in Mexico brought in 149,000 metric tons of U.S.-origin scrap in the first eight months of this year, representing a 7.2 percent increase from the 139,000 tons purchased in the same time frame in 2021.

Traffic in the other direction is much more even compared with the imbalanced ferrous scenario. In the first eight months of this year, 140,000 metric tons of aluminum scrap made their way from Mexico into the U.S. Last year’s traffic was lighter, with only 119,000 metric tons making the same journey from January through August of 2021.

Mexico’s market for red metal scrap from the U.S. is minimal, with the country’s purchases listed in the “other” category by the USGS in 2021. (The export destination heavyweights last year were China, Malaysia and Canada.)

This year, Mexico has earned its own ranking by bringing in 5,515 metric tons of copper scrap from the U.S. in the January to August time frame.

Red metal scrap traffic flows a little heavier in the other direction. In the first eight months of this year, more than 32,000 metric tons of copper-bearing scrap came into the U.S. from Mexico, down nearly 4 percent from the more than 33,500 metric tons that crossed the border during the period last year.

Provided political or tax factors don’t create barriers, scrap traders have been making it clear they see many good reasons not to build a wall between buyers and sellers who happen to be on different sides of the Rio Grande.

The author is senior editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net.