Mixed Signals

Recyclers of almost every material in North America have grown to expect consuming mills and plants in China to absorb a healthy percentage of the scrap materials they package and ship.

Few materials or grades have been more reliant on the Chinese market than the mixed nonferrous metals churned out on a daily basis by operators of metals shredding plants.

A number of recent developments in China, however, are causing producers of these grades to begin to examine what the mixed, shredded metals market will look like in an era when the market in China no longer provides a “bottomless pit” for these scrap metal grades.

A Second Great Wall
Followers of general business news and economic indicators have been able to read a great deal in 2013 about shifts and changes taking place within China’s economy. A number of these changes are likely to have a fundamental impact on metals production and demand for scrap in the near- and long-term future.

An issue that has had a more immediate impact on recyclers, however, has been the Chinese central government initiative known as “Operation Green Fence.” Green Fence is an effort by Chinese environmental and customs officials to more vigorously inspect (and more willingly reject) what they consider to be sub-par container loads of scrap materials.

At a session called the “U.S.-China Scrap Trade Consult Meeting” at the Institute of Scrap Recycling Industries Inc. (ISRI) Annual Convention and Exposition, held April 9-13 in Orlando, Fla., Wang Jiwei, vice president and secretary-general of the China Nonferrous Metals Industry Association Recycling Metal Branch (CMRA), referred to Operation Green Fence as a 10-month effort by China’s customs agency “to strengthen the supervision” of environmental standards. Wang said the effort includes random inspection of all forms of “imported waste,” meaning metallic, plastic, textile, rubber and paper scrap materials.

He said the intention of Operation Green Fence is in part “psychological,” to make shippers know China will “strictly examine the import application and [consider whether] to approve the import license” of shippers who are caught sending substandard material.

Shipments of “zorba” and other mixed metal grades do not generally contain excess liquids or other contaminants, and their intrinsic value puts them in a category far removed from waste.

Nonetheless, shippers of zorba to China are finding the Green Fence initiative can cause lengthy delays as ports are clogged by the inspection process. Rejections also may loom if inspectors see traces of items like circuit boards in loads of zorba.

Shipping mixed metals through Hong Kong has become one preferred option, according to several recyclers attending the ISRI convention in April. Other processors and brokers told Recycling Today editors they are assessing how to avoid shipping to China entirely in 2013 if the situation at Chinese ports does not improve.

While some shredder operators in North America are saying they will bypass the hassles of the Chinese market, it is not clear how many are actually sending more zorba to U.S. heavy-media separation plants, such as those run by Huron Valley Steel, Trenton, Mich., or Audubon Metals LLC, Henderson, Ky.

Regardless of scrap flow patterns, as of mid-May the Green Fence initiative seems to have become a factor affecting pricing within the mixed shredded metals market.

American Metal Market (AMM), which tracks pricing for scrap grades in the U.S., reported that the mixed metal grade “twitch” had fallen 9 percent (from 82 cents per pound to 75 cents) in the May buying period compared with April. The culprit was deemed to be Green Fence, which is causing an over-supply of zorba and twitch on the domestic market.

Exporters of scrap materials around the world and manufacturers in China who rely on secondary commodities are anxious for any signal from Beijing as to whether it fully understands the implications of Green Fence for its manufacturing sector if scrap materials become scarce.

In mid-May, the Beijing-based China Daily newspaper and website continued to publish stories of “waste smuggling” cases, though distinctions between “waste” and “recycling” (recognizing the value of secondary commodities) are sometimes made.

“Some waste — such as newspapers and magazines, that contains impurities of less than 1.5 percent — are imported legally,” a May 10 China Daily article noted, adding, “but waste that endangers the environment and costs a lot to recycle, especially household garbage, is banned from entering the country.”

End of an Era?
A number of wider economic trends taking place within China also may affect the demand for mixed, shredded metal grades produced in North America beyond 2013.

Some economic indicators pointing to slower GDP growth, stagnant overall manufacturing output and decreased spending on major construction projects raise the possibility that China’s 20-year run of rising metals production may finally be ready to level off. Over that span, metals production in China has soared to make it the No. 1 producer of steel, aluminum and copper.

Veteran scrap recyclers and metals industry analysts are familiar with the term “intensity” typically used to chart when an industrializing (or rebuilding) economy goes through its greatest period of metals production growth.

For several years after World War II, as Europe and Japan recovered from the devastation, scrap dealers on the Atlantic and Pacific coasts seemed to have an export market that knew no limits as those nations rebuilt.

Another export boom took place as the “Asian tigers” of Taiwan, South Korea and an export-driven Japanese manufacturing sector went through a metals intensity phase in the 1960s and 1970s.

Those nations generally continue to import scrap, but their peak intensity growth years are behind them. As well, they have evolved household consumer economies that now generate significant amounts of scrap domestically. Determining when and how China shifts to a similar postintensity stage remains to be seen.

On the demand side, China’s manufacturing sector is far from lifeless. The nation’s National Bureau of Statistics (NBS) reported in mid-May that China’s industrial output rebounded in April to increase 9.3 percent year-on-year, which was up from the 8.9 percent figure recorded in March. The growth of consumer goods provided a major boost behind this figure, with that sector growing by 12.8 percent in April. Construction spending also remains significant, although it may be leveling off.

The NBS reported in May that fixed asset investment grew 20.6 percent year-on-year to $147.3 billion in the first four months of 2013, with April recording slower growth than what occurred in the first three months.

An analyst from CITIC Securities contacted by China Daily said the growth that has taken place “was mainly driven by infrastructure and property investment, while investment in the manufacturing sector remained weak.”

As 2013 continues, some of the building activity also could decline if property market restrictions put in place by Beijing when the economy was deemed to be overheating slow property-related lending and, thus, construction.

Leveled-off metals production in China is bound to occur at some point. On the supply side, the collection of more domestically generated scrap within China is equally inevitable.

At the 2013 Middle East Metals Recycling Conference, held in March in Dubai, United Arab Emirates, Scott Newell of The Shredder Co. LLC, Canutillo, Texas, noted that 30 auto shredders now are installed in China and he predicted that it will take only a few years before that number grows to 100. The increase, he noted, is indicative of a larger stream of end-of-life cars and appliances that not only will produce ferrous scrap but also additional nonferrous flows. Newell added that China has an expanding network of more than 70 licensed electronic scrap shredding facilities, which likewise will yield more red metal scrap from the postconsumer sector.

China now has in place an urbanized and middle class population that purchases as many or more passenger cars and consumer electronics goods annually as are purchased in the United States.

With the country’s government and citizens having expressed a desire to recycle and recover the secondary raw materials contained in these streams, the nation’s domestic scrap generation is destined to increase for the foreseeable future.

Options and Futures
Shredder operators have choices when producing mixed metals products, including the use of separation specialists. How plant operators configure their downstream systems (to produce some combination of zorba, zurik, zebra, zeppelin, twitch or tweak) is often the first consideration.

Before China’s secondary aluminum producers (and a layer of recyclers who serve them) set up massive hand-sorting floors to purify these grades, North American shredder operators more routinely turned to domestic heavy-media and specialty magnetics plant operators. But now, most shredder operators remain inclined to ship mixed metals to China, in part because they often receive payment much faster, the margins can still be healthy and the demand—despite Green Fence—remains strong.

Recyclers are not convinced that 10 months of newly zealous customs scrutiny will create rapid changes in mixed metals flows. Later in the decade, however, demand in China that is destined to level off and decline coupled with greater scrap generation within China’s borders has many American mixed metals shippers being mindful to stay on friendly terms with domestic buyers.

The author is editor of Recycling Today and can be contacted at btaylor@gie.net.