Skip to comments.China's Need for Metal Keeps U.S. Scrap Dealers Scrounging
Posted on 03/13/2004 3:10:02 AM PST by sarcasm
OS ANGELES, March 12 At a time when toys, televisions and other products made in China are flooding into the United States, helping push the trade deficit to record levels, there is at least one American product for which China has a nearly insatiable demand industrial junk.
Sales of scrap metal to China have surged, with effects that are ricocheting across the American economy. Prices are soaring not just for scrap, but for metals in general. After years of surpluses that forced many steel makers into bankruptcy, supplies are so tight that contractors told a Congressional hearing in Washington this week that they sometimes cannot obtain supplies at any price.
China last year became the first country ever to import more than $1 billion of American scrap, according to the newspaper American Metal Market. Indeed, it would not be an exaggeration to say that China's transformation into an industrial powerhouse is being fueled by America's waste, and that of other countries, as well. Much of the material being used to build China's skyscrapers, factories and telecommunications systems along with many of the products it exports is derived from scrap, which is usually cheaper than new metal made from ore.
"China is very hungry," said David Pan, a Chinese-born scrap metal buyer, as a truck carrying steel reinforcing bars from a dismantled building in San Diego prepared to dump its cargo with a deafening clatter on the floor of his warehouse in Maywood, an industrial town just south of here. "They need a lot of material."
A decade ago, Mr. Pan was working in a Los Angeles restaurant when relatives back in China asked him to start buying scrap. Now, as China booms, so does Mr. Pan's business, called Universal Scrap Metals. He ships about 500 containers a month to China filled with battered pipes, fine metal shavings, doorknobs, jumbles of wire, crumpled cars and all other manner of flotsam. He is even negotiating to buy the remains of a steel factory in Utah; he would ship it, as scrap, to his native country.
American scrap dealers, an industry of 1,200 or so mainly mom-and-pop operations, are sharing in the boom times.
"They're scrounging every yard in the country, like a vacuum cleaner," Ely Keenberg, president of Ekco Metals, a Los Angeles scrap dealer, said of purchasers from China. At one point during an interview, Mr. Keenberg's receptionist interrupted to show him the business card of a man from Hong Kong who had just made a cold call looking for scrap. "If we allowed it, we'd have one in here every five minutes," said Mr. Keenberg, who sells 90 percent of his scrap to Chinese buyers.
American companies that depend on scrap are, in the meantime, scrounging.
"We're having greater and greater difficulty in securing scrap," said M. Brian O'Shaughnessy, chief executive and principal owner of Revere Copper Products in Rome, N.Y., a company founded by Paul Revere that turns copper scrap into sheets and strips. "It's causing the price of scrap to go through the ceiling."
Both copper and steel industry trade groups are drawing up petitions that would ask the government to temporarily limit scrap exports an authority that Washington has used only once, in the mid-1970s.
The price of scrap steel has soared to more than $300 a ton, compared with about $156 a ton at the end of 2003 and $77 at the beginning of 2001, according to the Emergency Steel Scrap Coalition, a group backed by steel users and minimills, which use scrap to make about half of the nation's steel. Many minimills have imposed surcharges to pass the higher costs onto customers like automobile and construction companies, with some of them resisting.
"Scrap is the overwhelming factor determining steel prices at this point," said Christopher Plummer, managing director of Metal Strategies, a consulting firm in West Chester, Pa.
Rising exports are clearly one factor behind the high prices, but the extent to which they can be blamed is debated. Over all, exports of steel scrap have almost doubled since 2000 to 11.9 million tons last year, close to a record. China was the largest importer, accounting for 3.5 million tons, or about 30 percent, of the exports.
But scrap dealers argue that exports are still small compared with domestic consumption of about 70 million tons a year, and so could not account for the huge price increases. Moreover, they note, there have been several occasions in the last two decades when total scrap exports reached or even exceeded last year's levels.
"What is happening now is not unique," said Robin Wiener, president of the Institute of Scrap Recycling Industries, the dealers' trade group. Attempts to restrict scrap exports, she said, are "just clearly a smoke screen attempt to control the price of scrap" and would be a "distortion of free trade."
Some experts add that in any event, China's building boom has the look of a bubble and cannot last indefinitely. Indeed, China's State Development and Reform Commission just announced that after fixed investment in steel mills rose 90 percent last year, it would stop approving virtually all applications to build mills. Still, with many mills approaching completion, one Chinese trade group forecasts that imports of scrap will nearly double by 2005 over last year's levels.
David L. Edelstein, copper commodities specialist at the United States Geological Survey, noted that while copper prices about $1.30 a pound are high, they have been as high before. One reason for price increases, he said, was that some copper producers were holding back output, after an oversupply a couple of years ago.
But copper scrap exports to China, including Hong Kong, have quintupled since 1998, and China now accounts for 70 percent of the total. China's purchases of American copper scrap last year were equal to about 40 percent of American consumption.
Scrap dealers argue that in some cases, the scrap going to China would be of no use to Americans because it would cost too much to sort into its various parts. But with China's cheap labor, that effort is affordable.
"We send everything to China," said Danny C. Yiu, vice president of Ekco Metals, the company owned by Mr. Keenberg. "They will use chisels, hammers, hand tools to break this apart and sort it out."
He pointed around Ekco's yards at various heaps of old automobile radiators, pots and pans, air-conditioner condensers, even parts of jet engines. There were also old soda cans squashed into giant cubes weighing 1,000 pounds each, stacked six or seven high.
At a loading dock, small Bobcat construction vehicles were loading two of the 25 or so 20-ton shipping containers that leave here each day for the ports of Los Angeles and Long Beach. After a Bobcat shoved a load deep into the container, the driver backed up, then accelerated forward, crashing into the pile with a loud bang to compress it.
The scrap world has its own vernacular to facilitate trading. Copper wire is known as "barley," yellow brass is "honey" and No. 1 copper tubing is "candy." And there is a food chain, where one company's scrap turns into another company's raw material.
The people above Ekco Metals in the food chain say they are not getting enough to eat. A few miles from Ekco is California Metal-X, which buys copper scrap and melts it in huge furnaces to make bronze and brass ingots. It then sells those ingots to foundries that make everything from bronze statues to brass valves.
"Last year was a year from hell," said Tim Strelitz, who founded and runs the company with his wife, Karen. The company last year cut its work force from 70 to 38 people, the first layoffs since its founding in 1979.
One problem, Mr. Strelitz said, was that it was difficult to compete with Chinese buyers, who have grown in sophistication since the days when Mr. Pan and others first came shopping. "They are not owners of restaurants trying to buy for a cousin anymore," he said. "They are buying for a dollar what I can only offer 80 cents for."
Yet another reason for Mr. Strelitz's problems is that his customers are ailing and in some cases going out of business in part because they face stiff competition from Chinese manufacturers of valves, faucets and other brass products.
"I've lost millions of dollars per year to China already," said Leigh Omer, foundry manager at Fresno Valves and Castings in Selma, Calif., a customer of Mr. Strelitz.
To Mr. Strelitz, Mr. Omer and others dependent on copper scrap, this seems like the ultimate indignity that Chinese companies drive up scrap prices, yet are able to sell products made from that scrap for less than American manufacturers can. Indeed, American copper companies contend that China is subsidizing importers of copper scrap and exporters of finished products, in part through tax rebates.
Joe Mayer, president and general counsel of the Copper and Brass Fabricators Council, said the group may file a trade complaint about this. "The faucets from China are coming into the United States at less than the metal value that we would have to pay," Mr. Mayer said.
Meng Jianbin, director of international cooperation at the Metallurgical Council of China for the Promotion of International Trade, a Chinese trade group, denied that his government subsidizes the scrap industry. While some incentives are provided for scrapyards to set up operations in particular industrial zones, they are not especially generous, he said.
Mr. Pan, the Chinese scrap merchant, said that Americans should be a little more appreciative of the benefits of China's scrap purchases. After all, he argued, they keep some junk that could never be used in the United States from ending up in American landfills.
"We do something good for America," he said. "We do something good for China."
They take our scrap and give us crap!
This is good hundreds of cars that were just laying around rusting away now are being used.
Free trade shall not be denied! Anyway these metals will return in the form of finished products.
As car stereos, or JDAMs?
Here is the good it has done my business:
Stainless Steel, Copper, and tin , my raw materials, are all up 40%. I have certain constraints as to how much I can raise my sales prices, so I now have the joy of working for Yuan instead of dollars.
But metal prices go up, and they can go down as well, so I'll just hang in there for a while.
Send them one half our nuke arsenal, via air.
Nope, nothing to see here. China is our friend. No problems. Nope, nope, nope. Move along... (/bitter sarcasm)
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