By Kent Kiser
The United States generates and exports more scrap than any other country in the world, so you might think it would have no need to import scrap—but you’d be wrong. Over the past 10 years, the United States has imported more than 62.3 million mt of scrap, or an average of 6.2 million mt a year. While ferrous scrap is roughly 50 percent of those imports by volume, U.S. buyers also import significant quantities of other common scrap commodities such as nonferrous metals, paper, plastic, and rubber as well as smaller amounts of specialized scrap. Even though imported scrap is only a small share—6 to 8 percent—of U.S. scrap consumption in any given year, those imports serve varied and important roles in the U.S. market, importers say. In short, there’s more to this market than meets the eye.
Imports by the Numbers
For the past 20 years, U.S. scrap import volumes have remained within a narrow band of approximately 5 million to 7 million mt a year, with a low of 4.5 million mt in 2001 and a high of 7.3 million mt in 2006. (The 2017 import total was close to that peak, at about 7.2 million mt.) Over the past 10 years, U.S. scrap import volumes were even more consistent, ranging from 6.2 million to 6.8 million mt in seven of those years. Joe Pickard, ISRI’s chief economist and director of commodities, attributes that steadiness to several factors, including “lackluster” economic growth, the nature of the U.S. manufacturing base, and little growth in overall U.S. scrap consumption, “which limits scrap import demand.”
Even though imported scrap is a small portion of total U.S. scrap consumption, the market share varies considerably by commodity. For example, the 3.7 million mt of ferrous scrap imported in 2017 was about 6 percent of domestic ferrous scrap consumption that year. In contrast, the 700,000 mt of imported aluminum scrap in 2017 was closer to 20 percent of domestic aluminum scrap consumption. The variation stems from both the availability of certain scrap commodities and the value of the material—namely, whether or not that value can offset transportation costs. “Transportation costs play an important role in determining import flows,” Pickard says. “While it may be cost-effective to import material from Canada, the transportation costs to move that same material across oceans may make less sense, especially for commodities with a relatively lower per-unit value. The higher per-unit value of nonferrous metals can mitigate transportation costs as a share of the material’s value.”
Geography, Supply, and Demand
U.S. buyers sourced the majority of their scrap imports, about 80 percent, from Canada and Mexico in 2017. Canada was the leading supplier of aluminum, copper, ferrous, paper, and stainless scrap, while Mexico was the main source of imported plastic scrap. Countries in the European Union supplied 15 percent of the 2017 U.S. scrap imports, with the rest of the world supplying the remainder. Despite some variability, the averages of those percentages have remained consistent over the past 20 years, Pickard notes.
North American and EU countries are the predominant scrap suppliers to the United States for several reasons. First, “the developed economies generate more scrap for export markets than less-developed economies because they’ve got more high-tech manufacturing and more advanced infrastructure in place,” Pickard says. “Those factors, and others, make them natural scrap exporters, which is what we see in terms of the United States, Canada, Europe, Japan, and other developed economies.”
U.S. scrap importers’ preference for Canada and Mexico also makes sense based on geographic proximity. “It’s basically a regional market among the United States, Canada, and Mexico,” Pickard says. “They’ve got the established transportation links,” and the North American Free Trade Agreement allows material to cross the northern and southern borders without tariffs.
Gary Sexton, vice president of Cascades Recovery (Toronto)—who trades scrap paper between Canada and the United States—concurs with that idea. He views Canada and the United States as a single market, especially because Cascades has paper mills and recovery operations on both sides of the border. “From a trading perspective, it’s all the same to us,” he says. “The border is just one of those things we have to deal with as far as documentation is concerned.” Canada’s proximity is especially helpful, Sexton says, when he’s buying scrap paper for Cascades’ mills in the northern United States. “The closer we can source the material to our mills, the better the landed cost,” he says.
Dan Cotter, a vice president for CellMark (Gothenburg, Sweden) based in San Anselmo, Calif., tells a similar tale. “We ship from western Canada to paper mills in the Pacific Northwest because of proximity, just as we ship into eastern Canada from the [U.S.] Northeast. You ship from supply areas to where the mills are; thus [we ship] from western Canada to the United States and/or Asia because there is not enough local Canadian demand for the scrap that is available.”
A similar proximity-and-demand scenario plays out in the aluminum market. “A lot of the Canadian aluminum scrap comes into the United States strictly because of proximity,” says Matt Kripke, president of Kripke Enterprises (Toledo, Ohio). “There aren’t enough consuming facilities in Canada to consume all the aluminum scrap that’s generated in Canada.” In the plastic market, KW Plastics (Troy, Ala.) imports polypropylene battery scrap and HDPE bottle scrap from Mexico, Canada, Central America, and the Caribbean for one simple reason: “We need the supply,” says Scott Saunders, general manager. “As our business has grown and we’ve had more opportunities to expand the marketplaces we serve, we need more and more supply, so we stretch out farther from the plant.” By his estimate, imported scrap is about 15 to 20 percent of KW’s overall scrap supply.
A scrap supply imbalance is the main reason U.S. consumers import nickel, stainless, and alloy scrap, market participants say. Stainless is one sector in which “over the years there has not been a surplus of scrap in the United States, as offshore markets in Asia, India, and Europe aggressively competed for U.S. scrap,” says Barry Hunter, president of Hunter Alloys (Boca Raton, Fla.). In 2002, however, when Spanish producer Acerinox opened a melt shop in its state-of-the-art North American Stainless mill in Ghent, Ky., “the export pattern—at least for the bulk shippers—was obviously getting ready to change,” he says. Another major change came in 2012 when Finland’s Outokumpu Stainless acquired the ThyssenKrupp mill in Calvert, Ala., and began to convert the facility into the major stainless production facility in the United States. “When Outokumpu moved into the United States, the business of bulk shipments of stainless scrap from the United States to European mills was assigned to history,” Hunter says. The production capacity of these two major U.S. stainless mills, combined with the output of existing mills, assured “a basic shortfall of domestic scrap availability, with the eventual necessity to import more stainless scrap,” he says.
U.S. scrap export statistics bear out that point. In fact, U.S. exports of stainless steel scrap have not exceeded imports since 2009, making this sector unique among the major scrap commodity sectors. In 2017, U.S. imports of stainless scrap were almost double the amount of U.S. exports of stainless steel scrap—951,000 mt versus 488,000 mt, according to government statistics. Canada and Mexico provided almost 265,000 mt—28 percent—of the imported stainless scrap in 2017. Scrap will keep coming from both Mexico and Canada, Hunter says, while overall U.S. imports of stainless scrap could grow thanks to increased supplies from the EU and less competition for scrap from offshore markets. “With current U.S. import restrictions on stainless products, primarily aimed at China, other consuming markets such as the EU will be the targets of China’s production,” he explains. “As I see it, this action could reduce production at those targeted areas, thereby reducing their needs for scrap.” Ultimately, he says, “material demand and logistics will determine international material flows, as usual.”
Supply quality is another consideration for U.S. scrap importers. Canada and the United States are virtually equal in recovered fiber quality, Sexton says. KW Plastics considers its foreign suppliers “very good” in terms of quality, Saunders says, but “we still have to work with each one to get them up to our quality specifications.” He notes, however, that “we see no difference in the ability or the willingness of the import suppliers to make a quality package” compared with U.S. suppliers.
Of Prices and Profits
At times, imports also offer scrap market participants a price advantage compared with purchasing or selling scrap domestically. “Consumers of scrap are always looking for options and the lowest-priced material,” Pickard says. Imported scrap might provide the lowest price for a U.S. buyer—and that price might still be higher than what the exporter can get in its home country or other foreign markets. “I think the majority of scrap metal that enters the United States, no matter where it’s from, is coming in because of price considerations,” Kripke says. “In a lot of cases, the scrap is just worth more in the United States than elsewhere. If you’re going to boil it down, that’s the biggest driver.”
As an aluminum broker, Kripke can attest that “sellers in other countries have an advantage selling scrap into the United States when the Midwest premium is high—they often can get a better price compared with the price in their own countries.” That’s because most international scrap sellers price their metal based on the London Metal Exchange primary aluminum cash price, plus or minus a differential, whereas U.S. sellers price their metal for domestic transactions based on the Midwest transaction price, plus or minus a differential. “In other countries, the premiums are not nearly what they are in the United States because they’re not in a net aluminum shortage,” the way the United States is, Kripke notes. He sees this dynamic at work in his own business. “When the Midwest transaction price rises, all of sudden we’re offered aluminum extrusion from South America, remelt sow from the Middle East, and other scrap from all over. When the Midwest transaction price is lower, we don’t see those offers because the value doesn’t pay for the freight.”
For higher-grade aluminum scrap, the buyers don’t see any price advantage from buying imports, Kripke explains, because they purchase the material based on the Midwest transaction price. “A load of 5052 is worth the same whether it originates in Canada, Mexico, or Iowa. The consumer is not specifying different pricing depending on where the material is sourced. In their mind, it’s all the same.”
The situation is different in other scrap sectors and even in other aluminum scrap grades, with the buyer sometimes able to purchase imported scrap at a lower price than domestic scrap. Even with aluminum, “UBCs are a different animal,” Kripke says. “Some people buy foreign UBCs at a lower price because they have found that the quality of UBCs coming from different parts of the world is not as high.”
The Leveraging Factor
In some circumstances, U.S. buyers use imported scrap or scrap from domestic suppliers who are outside their core geographic area—called springboard purchases—as a strategy to bring better balance to their regional market. “It’s a way some U.S. buyers try to keep their local scrap suppliers in check, and imports play a role in that, too,” Pickard says.
The domestic steel industry has used this strategy for years, says one ferrous scrap industry participant. It’s not uncommon, he says, for U.S. steelmakers to import prime grades—such as busheling or No. 1 bundles—from Europe and additional grades from Canada to meet their scrap demand and to moderate prices in a given region. “It truly is used as a leverage,” he says. Given the considerable transportation time required to import scrap from Europe, this strategy “takes some strategic planning and some foresight to try to plan that far ahead,” he says.
This strategy has worked “fairly successfully” for steel scrap buyers, this market participant says, but he isn’t happy about the added competition—just as the U.S. steel industry isn’t happy about competing with imported steel products. “It’s ironic,” he says, “that the industry that whines about imports of semifinished and finished steel products will utilize imports of ferrous scrap to its benefit when needed.”
The Potential for Change
The current turmoil in international trade has the potential to affect the small but steady flow of scrap imports, industry participants say.
The United States relies on Canada and Mexico as its two largest sources of imported scrap, so the renegotiation of NAFTA currently underway runs the risk of jeopardizing that trade. “The scrap flow between the three countries is extremely important for all those economies,” Pickard says. In Gary Sexton’s view, “there’s too much at stake” for the United States to significantly revamp NAFTA. Any renegotiation “would force a lot of very unnecessary juggling, and it certainly would have an impact on both Canadian and U.S. mills.” KW Plastics’ Saunders says his company is taking a “wait-and-see attitude” on the matter. “Anytime the government establishes trade rules and then starts talking about changing them, that could be disruptive. We’d just have to see what the new rules would be, but I’d prefer that the agreement stays the same.”
Another concern is the trade conflict between the U.S. government and other nations that started when the Trump administration imposed tariffs on imported steel and aluminum under Section 232 of the Trade Expansion Act of 1962. Section 232 allows such tariffs when the government believes the imports are a threat to national security. Pickard describes the tariffs as a “double-edged sword.” On one side, the tariffs on imported steel and aluminum could bolster domestic production. “The expectation is that capacity utilization is probably going to improve, particularly in the steel industry, and that should bode well for domestic scrap consumption,” Pickard says. If U.S. scrap demand increases, that “could have a knock-on effect in terms of [scrap] imports, especially from our NAFTA partners,” he says. Indeed, demand for stainless scrap—imported and otherwise—looks set to rise in the near term due to the U.S. government’s tariffs on imports of stainless products from certain countries, primarily China. “You cut off China’s stainless shipments into the United States, now the U.S. business goes up,” Hunter says. “You have the mills producing more today than they did two years ago, hence they require more scrap.”
The other side, however, is that U.S. trading partners can impose retaliatory measures, as China did when it enacted a 25-percent tariff on aluminum scrap it imports from the United States. With that scrap no longer destined for China, it will either find other international buyers or remain in the U.S. market, which could reduce the need for imported aluminum scrap—and potentially depress scrap prices. “It’s going to be an interesting scenario going forward because certain scrap grades—such as secondary smelting-type [aluminum] material—are starting to stay put, and there has been downward pressure on that pricing,” Kripke says.
One other major market worry is that China eventually could become a major exporter of certain scrap grades, such as ferrous. “The concern is that China could flood the market because of an overhang of material from its manufacturing and end-of-life products,” Pickard says. But he does not expect this to happen anytime soon. Even if China does boost its scrap exports, the Asian scrap market is likely to feel the impact before the United States, he points out. “I could see Chinese material more easily flowing to Japan, Korea, and the East and Southeast Asian economies than moving from China to the United States.” He envisions a stronger regional-based scrap trading network in Asia.
Transportation costs would be a major factor in any China-to-United States scrap trade, Pickard notes. Containers moving from Shanghai to Los Angeles cost more than containers going from Los Angeles to Shanghai because of China’s net trade surplus with the United States. In short, he says, “it makes more economic sense for the United States to ship the scrap to them than for them to ship the scrap to the United States.”
There’s also a question about the potential quality of Chinese scrap exports. “China doesn’t have the recycling infrastructure or the recycling technology in place to process the material to sufficient quality that would be acceptable on the global market,” Pickard says. Further, China may end up consuming more of its domestic scrap than expected, which would limit how much it sells into the open market.
Regardless of potential short-term trade disruption, the main economic factors that will influence U.S. scrap imports are how fast the U.S. economy and U.S. manufacturing base grow and the strength of U.S. demand for commodities, Pickard says. “Most economists are projecting relatively modest growth, with potentially more investment in manufacturing and recycling, which could bolster scrap imports somewhat,” he says. Overall, though, he doesn’t expect “a real revolution in terms of a wave of scrap imports coming into the United States, in part because we’re such a large scrap supplier to begin with. There are a lot of different dynamics that determine where scrap flows, and it’s important to keep in mind that this really is a global marketplace.”
Kent Kiser is publisher of Scrap and assistant vice president of industry communications for ISRI.