China’s era of sustained industrial sector growth began shortly after then Chairman Deng Xiaoping began introducing economic reforms in the early and mid-1980s. By the 1990s, China’s industrial growth entailed, in part, importing massive amounts of secondary commodities, including scrap metal, paper and plastic.
Scrap processors and traders who have been in the business for 20 years, and thus can be considered industry veterans, have only known a global market where Chinese companies were the leading overseas buyers. For many of these same traders and processors, making freight arrangements often has amounted to finding the most cost-effective container route to China.
China’s seemingly “no strings attached” welcoming attitude toward imported scrap changed perceptibly in 2013 with Operation Green Fence. That action, led by a coalition of Chinese central government agencies, was designed to enforce frequently-ignored quality standards for imported materials.
In 2017, the National Sword campaign and several follow-up actions brought further restrictions, this time including contaminant limits that are tougher than the global standard and outright bans on certain scrap materials.
For traders and scrap processors, the landscape appears to have changed abruptly and permanently. While trade negotiators from North America and Europe are questioning China’s newly-declared restrictions, the Chinese government has positioned the scrap material bans as an internal environmental matter.
In 2018 and beyond, recyclers will undoubtedly watch for any changes on the policy front. At the same time, however, they also are researching and making capital investments designed to adjust to the new reality, which involves finding new ways to prepare certain grades of scrap.
High-effort copper harvests
Among the raw materials most needed for the industrial and infrastructure build-up in China for the past three decades has been copper.
The pursuit of red metal units by Chinese copper and brass producers soon led to a massive scrap importing and processing sector that deployed manual labor to harvest furnace-ready copper from such materials as mixed motors, baled wire and cable and mixed shredded metal “heavies.”
For processors in developed nations with high labor costs, it was a welcome development. One veteran scrap trader recalls calling on scrap yards throughout the Eastern United States in the late 1980s, and inevitably finding a stockpile of motors toward the back portion of nearly every yard. “At that time, you could buy them for five cents per pound and sell them to a Chinese buyer for 10 cents per pound,” the trader comments.
Michael Friedman, of United States-based Sustainable Management Corp., says in that same era he “worked many years trying to solidify a firm market in China for electric motors.” He adds, “We generally bought motors for three cents per pound and sold them for six cents.” That margin didn’t last long, he comments, as sellers in the U.S. began demanding better prices from the flood of competing China-bound buyers.
Nonetheless, mixed motors became synonymous with shipment to China, as U.S. and European processors were happy to avoid the labor costs and potential environmental issues that came along with processing motors by separating the copper from the iron and steel castings.
Wire and cable scrap, on the other hand, has been treated with automated equipment since the 1970s. China’s entry into the market for this material involved making the economics work for processing lower-grade (less copper within) wire, and thus outbidding U.S. wire chopping line operators for it.
Each of these two processing-intensive grades have joined post-consumer mixed plastics and paper on China’s restricted list in 2018. Shipments of the two copper-bearing materials are still being allowed in 2018, but in import quota amounts greatly reduced from previous years.
The response from Chinese buyers is still forming. Some appear poised to set up processing operations in neighboring Asian nations. Another possibility is a renewed interest in higher-grade materials, such as clean No. 1 or No. 2 copper. This provides an incentive for North American scrap companies to invest in new processing equipment.
“We’ve already seen a good number of companies taking the plunge,” says Mitchell Goldberg of Philadelphia-based Northeast Metal Traders regarding such investments. “We’ve already made some strategic upgrades in our chopping operation, and we are always looking to improve and expand our capabilities and facility when it makes sense.”
Lane Gaddy, president of W. Silver Recycling in Texas, says his company also has critical reasons to broaden its ability to process red metal-bearing scrap, “especially in low-grade industrial items that cannot be refused through commercial commitments.” In such cases, adds Gaddy, “We foresee mechanical separation being the most logical path.”
Restoring mixed motor processing capacity in developed nations may involve more caution, but change appears to be afoot. “The last lot of motors I traded stayed domestically,” says Friedman. “With more powerful shredders and superfine eddy current sorters, I believe much of the motor business has returned to the U.S.,” he comments.
To what extent auto shredding plant operators will devote part of their capacity to shredding motors is not yet determined. David Dodds of United Kingdom-based Sackers Recycling says his company is operating under the premise that China’s import landscape has changed permanently.
“We will be investing in our own plants to cope with the recycling of the Category 7 scrap that China no longer wants,” remarks Dodds. Mixed motors fall within Category 7 in China’s tiered scrap import system.
Adds Dodds, “There is very little information coming out of China, so we have taken the stance to process our own material.” According to Dodds, this has included research into a mixed motor processing system.
Just over China’s border in the Hong Kong Special Administrative Region (HKSAR), Chiho Environmental Group Ltd. has installed equipment it will start operating in 2018 to process several types of waste electrical and electronic equipment (WEEE), including wire and cable scrap.
The scrap recycling firm is installing two processing lines outfitted with equipment made by Denmark-based Eldan Recycling. One line will focus on processing wire and cable scrap while the other has been designed to shred a wider variety of WEEE items before harvesting marketable scrap metals and plastics from the shredded material created.
Hong Kong-based Chiho has grown via acquisition this decade and now operates scrap recycling facilities under the Scholz brand in Europe and as Liberty Iron & Metal in the United States and Mexico. Although Chiho, which also has processing facilities in Taizhou and Yantai, China, is based in Hong Kong, the new WEEE facility will be its first in that city.
The Hong Kong processing facility is located within three warehouses situated on a six-acre (24,000-square-meter) parcel of land in the Yuen Long Industrial Estate within Hong Kong’s New Territories.
Hong Kong’s government is supporting a WEEE collection system that will direct some types of obsolete electronics to a facility being operated by Germany’s ALBA Group. However, Chiho General Manager Kwok Chun Sing says ALBA is likely to receive “about 35 percent” of the 70,000 to 80,000 metric tons of WEEE generated in the HKSAR each year. “So, there is a market for other companies to operate,” states Kwok.
Veteran scrap trader Tom Bird, who joined Chiho as its chief operating officer in 2017, says the company’s ability to process material in Europe, North America, China and Hong Kong gives it “flexibility in terms of what we can buy and process,” providing Chiho with an advantage.
Kwok says the e-scrap processing experience that will be gained by Chiho in Hong Kong also could allow it to “play a bigger role in the domestic market” in mainland China. Adds Bird, “China’s domestic market is an opportunity, and Chiho is well placed to take advantage of that.”
Among the truisms espoused by veteran recyclers is that “scrap is bought, not sold.” Considered from this viewpoint, recycling only makes sense if material has been procured at a price where it can be processed, transported and sold with a profit margin intact.
For recyclers examining the post-China restrictions landscape, that means investing in processing capacity not merely because material is available, but because it can be worthwhile to handle it.
In the wire processing sector, Jeffrey Mallin of Kansas City, Missouri-based Mallin Cos. expresses little doubt that more material will stay onshore, but he also points to the need for pragmatic investing. “We have already installed equipment that further refines some of the products that used to go overseas, but nowhere near the capacity of what is out in the marketplace available to process or buy,” he comments.
Fellow wire processor Todd Safran of Chicago’s Safran Metals expresses a similar sentiment. “Depending on what exactly transpires, we have to determine what we should be handling and see if some of these [formerly] China-bound items are no longer viable to recycle,” he says
Among the factors to watch, says Safran, is to see how many Chinese companies set up operations in neighboring Asian countries. “China may no longer remain an option for some of these materials in question, but other markets may become available that otherwise were not in play, and we expect to look at all available opportunities.”
Even with such caution noted, North American investments in wire chopping, beyond the ones mentioned earlier by Mallin, Goldberg and Gaddy, have taken place in 2017 and 2018.
Buffalo, New York-based Wendt Corp., which distributes wire processing equipment made by France’s MTB Recycling, has announced three new sales and installations in the June 2017 to January 2018 time frame.
In 2017, Sims Metal Management began installing an MTB Cable Box system at its Fairless, Pennsylvania, location. MTB indicates the Cable Box is “designed to process up to three tons per hour of materials, including difficult-to-process materials such as shredder wire, aluminum conductor steel-reinforced (ACSR) wires, armor-clad (BX) cable, underground residential distribution (URD) cables, Category 5 cables, tubing encapsulated cables (TEC), ‘jelly’ cables and zorba fines.”
The following month, another Cable Box sale was announced, this one to Medford, New York-based Gershow Recycling. In January 2018, Wendt Corp. and MTB announced a Cable Box sale to Sterling, Virginia-based Potomac Metals.
“The demand for insulated copper wire has weakened, and several buyers have priced themselves out of the market due to oversupply,” stated David Zwisky, a vice president with Potomac Metals, when the sale was announced. “We look forward to getting up and running because with this machine and the type of material we will be processing, we will have a very clean product that should be able to reach any mill’s specs while helping to increase our margins.”
To spin China’s import restrictions as a positive for U.S. recyclers can seem far-fetched as companies struggle to react in early 2018. When or if a longer-term reaction of pursuing opportunities takes shape in the ensuing months is likely to influence recycling company strategies throughout the rest of 2018 and into 2019.
This article in an edited excerpt from the March 2018 Recycling Today article “Claiming the High Ground.”