November/December 2018
By Megan Quinn
In the the past few months, Jurgen Van Gorp has been getting calls and requests for meetings from more and more potential scrap suppliers he hasn’t worked with before. “I think a lot of people kept my business card from 10 years ago,” he says. “It’s good to know my card is still out there.”
Van Gorp is a senior buyer and area manager for Metallo, the nearly century-old copper recycler and refiner based in Beerse, Belgium, with additional operations in Vizcaya, Spain. Metallo uses only recycled material in its refinery operations. He suspects many of these new potential suppliers—some of whom are based in the United States—are hoping to diversify their customer base because Chinese scrap import restrictions and the trade war between the United States and China have disrupted the flow of copper scrap.
The trade war started in March, when President Donald Trump, citing national security concerns, imposed tariffs on all imported steel and aluminum. China and other countries responded with tariffs on some U.S. goods. The next month, the United States, citing unfair trade practices, imposed tariffs on Chinese high-tech products. China responded with more tariffs of its own, and the two countries have been trading accusations and tariffs since then. The trade war hit home for recyclers in August, when China announced a 25-percent tariff on all scrap commodities imported from the United States—a move that has effectively halted U.S. scrap shipments there.
U.S. copper processors and traders are searching for new markets while coping with volatile copper scrap prices that relate in part to the trade turmoil. At least one group is benefiting from the imbalance of copper scrap in the market: European copper consumers. A surplus of copper scrap is flowing through their doors instead of flowing to China, allowing them to cherry-pick the best materials at a lower price. “It’s like Christmas,” says Michael Lion of Everwell Resources (Hong Kong). “They have long wished to have this gift from China.” This opportunity could result in reliable, long-term trading relationships between U.S. scrap exporters and European companies, but industry participants warn that the window of opportunity for U.S. copper exporters may be short-lived.
A sea change in scrap copper exports
Until recently, China was the top destination for U.S. copper scrap exports. About 70 percent of U.S. copper scrap exports by volume went to China in 2017, according to U.S. Census Bureau and U.S. International Trade Commission data. That’s about 687,894 mt of copper and copper alloy scrap valued at $1.72 billion. But even before Chinese tariffs on scrap went into effect in August, U.S. copper scrap shipments to mainland China had declined significantly this year. It started back in July 2017, when China, hoping to clean up its environment and curb the flow of what it called “foreign garbage,” announced it would stop accepting certain types of imported scrap, including mixed paper and some postconsumer plastics. It also introduced more stringent technical standards for contamination—a limit of 0.5 percent prohibitives for most scrap, including insulated wire and electric motors, and 1 percent for nonferrous metals. Processors who couldn’t meet the standards were cut out of the market, says Adina Renee Adler, senior director of government relations and international affairs for ISRI.
U.S. exporters also faced problems in May, when the Chinese government suspended operations of CCIC North America, which conducts preshipment inspections required for shipping scrap to China, for one month. The delay prevented scrap cargo destined for China from leaving the United States. When China lifted the suspension, it also imposed new costly and time-consuming requirements on scrap preshipment inspections, such as requiring the inspector to witness container loading at the scrap facility, not at the port.
In the first six months of 2018, U.S. copper scrap exports to China fell 38 percent by volume compared with that period in 2017. Combined with decreases in other nonferrous exports to China, it’s a loss of more than $670 million in export sales, says Joe Pickard, ISRI’s chief economist and director of commodities.
Though the import bans and higher quality standards were the first factors to affect scrap trade between the United States and China, “U.S. scrap has been a big casualty” of the trade war, Edward Meir, director of Commodity Research Group (New York), said during a presentation at the Bureau of International Recycling conference in London in October. He noted that tariffs are a “blunt instrument and can have a lot of unintended consequences” that can affect the global recycling sector long term. The tariffs were the last nail in the coffin for American copper scrap exporters doing business in China, Van Gorp says. “There are specific troubles between China and the U.S. which will not disappear overnight. China is no longer an outlet for a majority of the materials generated in the U.S. market.”
A window of opportunity
In the scramble to find new markets, many scrap exporters are eyeing emerging destinations such as Malaysia, India, South Korea, Indonesia, and Taiwan, “some of the strongest growth markets for U.S. nonferrous scrap in the first half of 2018,” Pickard says. However, some of these countries may adopt quality thresholds similar to China in the future, says Sean Davidson, global editor of Argus Metal Prices (London). Malaysia enacted a temporary plastic scrap import ban over the summer and is developing a long-term policy for importing other scrap commodities, for example.
Though no single country can make up for the hole China left in the market, American processors may find a modest window of opportunity in Europe because of the unique imbalance of scrap caused by the trade war, Van Gorp says. China’s demand for copper scrap is about 24 million mt a year, and “copper mills in China still need the copper, even if it doesn’t come from the United States,” explains Andy Wahl, president of TAV Holdings (Atlanta), which sells copper chop to international buyers that include European refiners. “Some European material is flowing into China now since [European sellers] aren’t under the influence of Chinese tariffs. At the same time, many European processors have upgraded their sorting equipment to produce material that meets China’s tighter quality standards. This development pulls some metals out of Europe, so there’s some room for American metal to go to Europe.”
Metallo is in a good position to accept some of the materials sellers now have trouble selling to China, Van Gorp says, because the refinery’s business model focuses on materials such as copper chops, mixed alloys, turnings, slags and drosses, copper-containing electric motors (“meatballs”), and heavies, which it sources across the globe. “A good deal of the materials that have been shipped into China could find a home in our facilities,” Van Gorp says.
Randy Goodman, executive vice president at Greenland (America), based in Roswell, Ga., says he isn’t surprised some U.S. copper processors are becoming more interested in selling their material to Europe as well as emerging markets in Asia. He’s also noticed that refineries in Europe are looking for more scrap than usual in the past few months, possibly “taking advantage of what’s available” because of the imbalance in the markets, he says.
More interest from U.S. and other countries’ scrap exporters has been great for Metallo and other European copper refineries, Van Gorp says. “It has created momentum. It means a wider range and more material to pick and choose from in the European market, and it’s a comfortable position for us,” he says. This trend has been especially noticeable in the last few months, adds Wahl, who recently returned from a trip to Europe, where he visited several copper refineries. The current flow of scrap “has made them all quite happy right now, and you can see why. It’s a buyer’s market.”
The situation is quite different from a decade or so ago, when China was a major competitor for European refiners. Back then, these refiners had to change their business model or find new niches to stay competitive in the global market. “Many years before, when China was aggressively importing, the fight for raw material was marked by a shortage of available material,” says Murat Bayram, director of European nonferrous trading for EMR (Westbrook, England).
Indeed, China’s presence in the copper scrap market influenced Metallo’s current business model, which has made the company more stable today, Van Gorp says. “The competition with China, which started in the late ’80s and early ’90s, made us look at niche markets. As a result, we decided to focus more on complex materials and fine-tune our technology instead of competing for more traditional commodities like Birch and Cliff,” he says. “We wouldn’t have lasted if we [had] stayed a traditional refiner.”
Today, the trade war between the United States and China has put Europe on a more level playing field. “The U.S. market had a very tight connection with China and was used to sending material as is. … Europe didn’t have that type of luxury situation with China,” Van Gorp says. Instead, “European companies invested in mechanical separation technology, well ahead of the curve,” to fit niche markets and stay competitive. With China now focused more on quality and U.S. exporters no longer having a price advantage, “you can currently detect streams of U.S. materials ending up in the European market for mechanical upgrading because the U.S. market currently lacks the equipment when compared to Europe.”
Van Gorp says he expects to see more processors invest in equipment upgrades in 2019 and beyond, to continue supplying the Chinese and other global markets, but “no one actually knows how long the momentum will last. The tricky part is there is an unknown element of time. No one likes to spend the money, only to realize the momentum is gone.”
Yet China isn’t the only reason processors are upgrading or installing new equipment. Producing higher-quality scrap can create opportunities in other markets as well. For example, United Metal Exports (Irvington, N.J.) recently opened a 40,000-square-foot facility to process up to 10 mt of copper cable a day to sell the clean copper chops primarily to domestic customers, CEO Stan Chen told Recycling International in September.
When will the window close?
TAV Holdings has been less affected by the China situation than some other U.S. companies because it doesn’t do any business in China, Wahl says. TAV isn’t trying to break into the European market—it’s been doing business there for 15 years. It produces a 50- to 80-percent copper product that also contains precious metals, and “there’s only five or six refineries that will pay you properly for that,” most of which are in Europe, he says.
Other factors make Europe attractive, too. For example, freight costs are competitive with China, Wahl says. In some cases, it’s more convenient for American companies to ship to a place like Belgium or Spain than it is to ship to a domestic location because of ongoing issues with domestic rail and truck-driver shortages, Van Gorp adds.
However, as European scrap processors upgrade their equipment and continue to sell to their local refiners as well as meet the requirements of Chinese markets, Wahl feels the competition starting to heat up. The wave of U.S. scrap copper feeding European refiners’ furnaces is only one part of the global picture. Even as China buys more metal from Europe now, it’s planning to stop importing some types of nonferrous scrap by the end of the year and will “very likely close its doors” to all nonferrous scrap imports by the end of 2020, Bayram says.
“When China drops out, other markets get jammed with material, and that leads to lower prices,” Wahl says. The copper chop market is reaching that point now, he says. “What we’ve seen is that it’s harder to place [our] metals because more people are chopping wire in Europe now,” he says. “This started two or so years ago, so there’s a lot of copper chop units replacing the typical No. 1 copper.”
Neither the refiners nor the processors able to take advantage of this market situation in Europe want “Christmas” to end, but both know the situation won’t last forever, Wahl says. Aside from wondering how extensive the competition will become, these market participants have one other big question: Will China really stop buying imported copper scrap? “People are asking themselves how the Chinese are going to replace these metal units they’re restricting imports of,” Wahl says. “Right now it’s from furnace-ready material produced in countries” not subject to tariffs. Yet, as Bayram points out, China has already announced it will stop importing “Category 7” materials—motors, meatballs, insulated wire, and some mixed metal scrap—at the end of this year. It’s likely to implement its plan to stop importing all nonferrous materials in the near future.
Wahl thinks China will become a net exporter of nonferrous metal scrap soon, which could completely change the flow of scrap again. As Chinese residents become more affluent, they buy more products, he says, and those products will reach their end of life soon. “Those cars, those toasters, those recyclable products haven’t yet hit the recycling stream, but they’re coming,” he says. “And while the rest of the world is buying newer recycling equipment to stay competitive, China is, too.”
Looking West
While TAV faces increased competition from other copper scrap exporters looking for European buyers, Wahl says he and other U.S. companies that have been selling to European refiners enjoy some stability because of the long-term, reliable relationships they have built over many years. Goodman and Van Gorp both say agreements between U.S. and European companies are long-term strategies, not a quick fix for material that once went to China. Breaking into the market now has its advantages, but European businesses value partnerships and “the challenge is that every yard or refinery [already] has its long-term suppliers,” Van Gorp says. “We make it work because we provide consistency and stability in the market.”
Wahl cautions that it will only get more challenging to foster these relationships as time goes on. “A good dealer has been doing business in Europe in the first place. Those who didn’t pay attention to what was happening in China might find it’s hard to break into the market now,” he says.
Doing business in Europe is much different than it is in China, these traders say. “You need to understand and be a willing participant in the idiosyncrasies of what makes it a European market,” Goodman says, including complying with strict EU environmental regulations. There’s one other major difference: European businesses “don’t pay you up front like the Chinese do,” Wahl says. Copper refineries will do an assay, which could take a few weeks, and in the meantime they might pay 50 percent of the lot. Currently assays are taking longer than usual, Wahl says, because of the increased interest in the market, which is something to think about if budgets are tight and you can’t wait for payment. There isn’t much waiting with Chinese transactions, he says. In China, “they look at the shipment, and if it looks like No. 2 copper, they pay you, and it’s good to go.”
Current market conditions may favor European copper refiners, but these recyclers say they were working in Europe before China’s emergence as a scrap consumer and will continue to foster trade relationships there long after China stops buying imported scrap. Even as suppliers look for the “next big thing” in other Asian countries, they can also benefit from a small but stable toehold in Europe if they can manage the competition, Goodman says. “Europe can never be perceived as an emerging market, but it’s always been a good one.”
Megan Quinn is reporter/writer for Scrap.
European copper smelters are well-positioned to benefit from today’s drastically changing scrap flow. That might present opportunities for American copper scrap exporters, but China still looms as a long-term concern.