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As the peak growth years of China’s production of wire, cable and other copper products seem to have ended, production in the U.S. may be poised for a rebound.

Brian Taylor January 7, 2013

Following in line with its rate of gross domestic product (GDP) growth, the rate at which China produces copper is still growing, but not as fast as during the peak years of 1998 through 2011.

Figures maintained by China’s central government show the country is likely to finish 2012 with GDP growth in the 7.7 percent range. Likewise, its production of copper and its consumption of copper-bearing scrap are likely to increase in 2012 and in 2013, but not at the dizzying rates seen several years earlier.

For scrap recyclers in the United States, stoking China’s secondary copper furnaces for the past several years has provided a helpful outlet during a time when the domestic metals production industry—and particularly metals products heading into the construction sector—has not been particularly healthy.

Since the financial crisis and subsequent manufacturing downturn reached its trough in early 2009, many manufacturing sectors have clawed toward better health, but construction has remained bedridden.

Heading into 2013, some factors are pointing to a modest recovery of the construction “sick patient” beginning to take place, which would be helpful to U.S.-based producers of copper wire, cable and tubing, brass rod, pipes and fixtures and the scrap processors who supply them.


Glowing Red in China

Intermittently in 2012, red metals buyers and sellers continued to ride the roller coaster caused in part, many copper producers and recyclers say, by copper’s status as an investment product on the commodities market.

On the London Metal Exchange (LME) in 2012, copper traded for as much as $8,655 per metric ton ($3.97 per pound) in February before falling to its low, thus far, of $7,251 per metric ton ($3.32 per pound) in June.

Secondary copper production statistics in China point to copper-bearing scrap remaining in demand there. Although annual copper production figures are starting to rise more slowly, they continue to climb.

At the 2012 CMRA (China Nonferrous Metals Industry Association Recycling Metal Branch) Recycling Metal International Forum in Beijing in November, Hank Qiu, a senior consultant with the China branch of the New York-based International Copper Association (ICA), noted that some 22.1 million metric tons of copper was consumed globally in 2011, with nearly 30 percent (9.75 million metric tons) of that consumed in China.

For the past 15 years, both state-owned enterprises and entrepreneurs have been furiously adding copper production capacity—much of it secondary copper production—to keep pace with that consumption.

As China embarks upon its 12th five-year plan for its economy in 2013, more metals production is forecast, with sustainability initiatives such as the “circular economy” and “scientific development” favoring the ongoing use of scrap materials.

China’s reliance on copper-bearing scrap is well-documented in the business media, but actions by customs and inspection agencies in China often cause recyclers in the U.S. to wonder why the message has not filtered down.

At a presentation at the Electronics Recycling Asia conference, held in Guangzhou, China, in November of 2012, Professor Yangzu Wang of China’s Ministry of Environmental Protection assured an audience of recyclers that imported scrap materials have been greatly appreciated.

Wang noted that in the second half of the 20th century, the United States had 5 percent of the world’s population but consumed anywhere from 30 percent to 60 percent of the world’s resources, depending on the particular commodity.

In the new century, China has grown rapidly as a manufacturer and as a consumer of raw materials. “We manufacture the most but only have 50 percent of the raw materials we need,” Wang commented. “We need to import natural gas, copper and so on.”

These two historical factors have come together in the form of the U.S. shipping high volumes of obsolete and scrap materials to China, where they can be used as raw materials.

“In the past 20 years, 360 million tons of recyclable materials have been imported into China,” Wang said, including 180 million tons of scrap paper, 70 million tons of metal and 50 million tons of plastic scrap.

These scrap resources have been critical in many ways, he said, “providing jobs to 1 million people and saving 80 percent of the energy” that would have been consumed using primary materials. The scrap resources that have poured into China have provided “positive social, economic and environmental benefits” the Ministry of Environmental Protection official stated.

Repair and Replace

Business owners and managers don’t set up their companies to take advantage of natural disasters, but in some cases it becomes a byproduct they did not request.

Repairing the damage in the Northeast caused by Superstorm Sandy included a lot of electrical grid work initially and will entail considerable rebuilding in the following months.

A Newsweek report noted that electrical power provider “Jersey Central Power & Light had to replace 6,000 poles and over 400 miles of wire after Sandy.” And the New Jersey utility was just one of several affected.

A report in USA Today refers to “armies of flatbed trucks stacked with the 40-foot long poles rolling across U.S. highways to reach the affected areas and replace utility poles knocked down or splintered by Sandy.”

The North American Wood Pole Council, contacted by USA Today, estimates that “the number of new utility poles sent to areas ravaged by Sandy is on pace to match what was delivered after Hurricanes Katrina and Rita in 2005 [when] suppliers dispatched about 100,000 poles to the devastated Gulf Coast.”

Reconnecting those replacement polls to the grid will entail miles of electrical cable and considerable numbers of transformers and other electrical units.

Wang said China is by no means done importing scrap materials and may have room to expand its imports in such areas as ferrous scrap for steelmaking.

Among the challenges facing scrap importers are differences in customs regulations between the European Union, with 70 different types of scrap materials listed on manifests, and China, where only around 20 types of scrap have approval to enter the country.

Even after all scrap materials have done for China, Wang said “prejudices” remained in the minds of some people in the country. “Some people believe importing recyclables is importing garbage, [but] just 0.09 percent in 2011 of shipped materials were not acceptable. It is not importing garbage—this is wrong,” he stated.

At the same event, Institute of Scrap Recycling Industries Inc. (ISRI) President Robin Weiner referred to the status of the U.S. as the world’s largest scrap exporter. In 2011, the U.S. exported some $39.2 billion in scrap materials, with $11.5 billion of that total heading to China. She also said some 3 to 4 million tons of electronic scrap are now collected annually in the U.S., with “75 percent from the commercial or business sector.”

The harvest of copper gained from electronic scrap processing is helping to fill global demand at a time when overall red metal scrap supplies are tight.


Closer to Home
In good and in bad economic times, scrap recyclers have long experienced a consolidation in domestic melting destinations for copper-bearing scrap.

A lack of options on the domestic sales front has been especially acute since the construction industry went into a swift and long-lasting slowdown that started in late 2007.

Only at the end of 2012 are construction industry associations using terms like “solid improvement” and “modest gains” as they analyze industry activity in the fourth quarter of the year.

In a news release summarizing October 2012 construction data, the Associated General Contractors of America (AGC), Arlington, Va., says, “All major segments of construction spending increased in October, bringing total spending to a 37-month high at an annualized rate of $872 billion.”

Ken Simonson, AGC chief economist, says, “Widespread gains in spending in October, along with hefty upward revisions to estimates for the previous two months, show that construction has finally come out of its long slump. Although all major spending categories are far below prerecession highs, they are well above their recent low points.”

Simonson says total construction spending rose for the seventh consecutive month in October, up 1.4 percent from September’s total and 9.6 percent from October 2011.

Private residential spending reached the highest level since November 2008, increasing by 21 percent during the past 12 months. Private nonresidential construction edged up 0.3 percent for the month and 11 percent compared with October 2011. Public construction rose 0.8 percent in October but has slipped 1 percent year-over-year.

The Associated Builders and Contractors (ABC), also based in Arlington, summarized the same U.S. Census Bureau October figures as “a modest gain,” adding that “total nonresidential construction spending—which includes both private and public projects—is up 5.1 percent compared to one year ago.”

The ABC also released its 2013 economic forecast for the U.S. commercial and industrial construction industry, saying “it shows the continuation of a modest recovery for nonresidential construction next year.”

ABC Chief Economist Anirban Basu says, “Thanks to a handful of segments experiencing more rapid economic recovery, much of the construction expansion next year will be in categories heavily associated with private financing.”

Basu continues, “Consumer confidence also has progressed. Accordingly, ABC predicts total commercial construction will expand roughly 10 percent next year. Other industries positioned to experience rising levels of investment include power, up 10 percent; lodging, up 8 percent; health care, up 5 percent; and manufacturing, up 5 percent.”

Scrap recyclers in the United States will be among the first to know, if additional electrical, plumbing and building contractor scrap starts crossing their scales, that the construction industry is finally experiencing an upturn.

 

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

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