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Uneasy feeling

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Although commodity prices did not plunge in 2013, China’s Operation Green Fence and modest scrap generation caused considerable stress for recyclers.

Brian Taylor December 5, 2013

As of mid-November 2013, the year has passed without any drastic “the bottom has dropped out” commodity pricing collapses that can cause a calendar year to go down in infamy among recyclers.

That being said, on the buy side, scrap flows and material generation remained disappointing for many recyclers in 2013. On the sell side, meanwhile, China’s Operation Green Fence caused considerable work and cash flow issues for exporters.

Nonferrous traders experienced Green Fence issues in 2013, with mixed container loads and certain grades coming under scrutiny by Chinese customs authorities starting in February 2013. As well, stainless steel markets have remained depressed, casting at least one company in that segment into financial trouble.

The ferrous scrap sector, which conducts a smaller percentage of its overall trade with China, was less affected by Green Fence. The main concern for ferrous processors and traders has been ongoing lackluster generation of materials and Turkey’s occasional disappearances as an overseas buyer in 2013.

Traders of plastic scrap and recovered fiber (as well as mixed metals) began hearing about Operation Green Fence in February. The rest of the year has largely involved figuring out how to minimize negative impacts and adjust to the inspection and rejection policies adopted through the cooperative efforts of the Chinese government agencies that crafted Green Fence.
 

More Action Welcome

Ferrous scrap recyclers in North America can be thankful they have been less affected by Green Fence than recyclers in other sectors, but that doesn’t mean 2013 has been without challenges.

Scrap recyclers continue to bemoan a lack of generated scrap to feed installed processing equipment, with many shredding plant operators in particular finding it difficult to procure enough feedstock to keep plants running five days per week. Don Zulanch of Cohen Brothers Inc., Middletown, Ohio, says the first few months of 2013 were “very slow—very,” but by May some improvement could be seen.

Plastic Exports Encouter a Fence

Plastics recyclers who gathered for the RePlas 2013 this fall in Hangzhou, China, took part in an conference that its host described as the first such convention in the “post-Green Fence era.”

The effects of Operation Green Fence and reactions to it from plastics recyclers dominated much of the programming at the RePlas 2013 autumn event, which was Nov. 6-8.

“The mission to recycle makes plastic recycling quite an honorable industry,” said Jason Wang, secretary general and executive vice president of the China Scrap Plastics Association (CSPA), in remarks at the start of the event’s program.

Yet Wang and subsequent speakers also acknowledged that plastic recycling and the importing of plastic scrap into China had an undeniable image problem.

Current CSPA Executive President Dr. Steve Wong, who also is president of Hong Kong-based Fukutomi Co. Ltd., said too many media reports “refer to our industry as ‘foreign garbage.’ We need to coordinate better with the media and share with them our process and to promote it.”

Later in the event, presenter Tan Xian from the antismuggling division of China Customs reported that plastics recyclers have had a major presence in enforcement actions taken by his agency. In 2013, 62 percent of the imported material by volume deemed to be solid waste was represented as plastic scrap on customs forms. As well, 76 percent of incidences involving the unauthorized use of an import license by a recycler were by recyclers claiming to be in the plastics business.

One window into the lack of ferrous scrap flows in the U.S. can be seen in export figures, as America’s ability to supply the rest of the world with ferrous scrap (or need to supply the rest of the world) fell by 23 percent in the first seven months of 2013 compared with the same time span in 2012.

From January to July 2012, the U.S. exported 6.01 million tons of ferrous scrap. That figure dropped to 4.63 million tons in the first seven months of 2013, however, according to the U. S. Geological Survey.

The decline in the export market coexisted with flat domestic steel mill melting schedules in 2013, resulting in slumping scrap prices. Steel mill purchase transaction figures in the U.S. collected and averaged out by Pittsburgh-based Management Science Associates (MSA) for its Raw Material Data Aggregation Service (RMDAS) spell out this declining price scenario.

Between April and October 2013, average prices for No. 2 shredded scrap in the U.S. ranged between $392 and $360 per ton, though the trend in the most recent six-month span is discouraging. That high figure of $392 per ton occurred in April, while the low mark of $360 occurred in the October buying period.

November pricing has brought about a rebound, reportedly spurred in part by increased purchase orders from Turkey. Although last winter proved to be a difficult one for the scrap market, Zulanch—who lived through those reduced scrap flows—is looking forward to 2014 with renewed optimism. “A lot of dealers are optimistic going into 2014; the market looks very firm,” he states.

Even with the challenges in 2013, Zulanch is quick to point out that in the ferrous sector the year cannot be counted as a dreadful one that will long be remembered negatively. “It was not a bad year and it was not great either,” says Zulanch, also calling 2013 “much better” than 2012. “We sold more, often at better prices with better margins, so all in all we are OK with 2013 but looking for bigger and better in 2014.”
 

The Green Monster

As the ferrous market scrambled for adequate supplies and waited to see if export markets would improve, recyclers of most other materials had their 2013 turned upside down by Operation Green Fence.

Many recyclers learned of Green Fence in February 2013 when their containers were being held up at ports in China either because of questions about their shipments or because of the huge backups caused by the heightened inspection routines.

Shippers of nonferrous scrap, paper and plastic began encountering questions and rejections from Chinese government agencies operating at port locations. In many port cities, if a shipper sent in 20 containers of scrap materials and just one of them had a documentation or contamination issue, all 20 containers were held up at the port.

Presentations by representatives of Chinese government agencies initially focused on public health and safety issues, pointing to loads contaminated with brackish water, mold, pests and live ammunition. Ferreting out nonsorted waste shipments has remained a goal, though another Green Fence aspect has involved tax evasion.

In a presentation at the 2013 China National Resources Recycling Association (CRRA) International Recycling Conference & Exhibition in September, Chen Zejun of the China Customs office in Guangzhou said the scrutiny provided by Green Fence had cut down on “false reports” used by importers as a tax evasion method.

Chen said collecting appropriate taxes and import duties was one of four goals that China Customs, the Chinese Ministry of Environmental Protection and the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) had as it developed and introduced Green Fence.

Chen told attendees, “There is a lot to be recycled, but it has to exceed certain standards. You cannot dump nonrecyclable or nontreated waste on other countries.”

She said Operation Green Fence was designed to address four problems:

  • Importing low-value waste;
  • False reports on import documents pertaining to the product enclosed or to the value of the scrap product in the container;
  • Selling or lending import certificates; and
  • Reselling of imported scrap to nonimport certificate holders.
     

For recyclers in North America, the immediate headaches involved financial losses because of rejected shipments, the logjam at Chinese ports and the creation of material stockpiles when grades like mixed plastics were withheld from shipment

By the time of the 2013 Paper Recycling Conference & Trade Show, organized by Recycling Today Media Group in partnership with the Paper Stock Industries (PSI) chapter of the Institute of Scrap Recycling Industries Inc. (ISRI), in Chicago in mid-October, recyclers of mixed postconsumer materials claimed to have invested in automated or manual sorting of materials and to have slowed down their sorting lines in an attempt to improve quality.

In a session at the conference, Johnny Newsome of packaging products maker Sonoco Products Co., Hartsville, S.C., whose company also manages 28 recycling plants, remarked, “We’ve added sorters, and we’ve slowed our lines down, and the quality is better as a result.” While some of these measures were designed as a response to China’s Operation Green Fence, Newsome said, “I think U.S. mills will benefit also.”

Ryan Anderson of paper mill company SCA Americas, Menasha, Wis., also pointed to the potential long-term benefits of Operation Green Fence’s ability to cause recyclers to strive for cleaner shipments. “I think we’re to the point where [quality improvement] has started to happen,” Anderson told delegates. “Green Fence has made it easier to go back to the suppliers and hold their feet to the fire.”
 

Challenges Aplenty

During the urbanization and industrialization of China of the past 15 years, nonferrous metals prices have achieved a reputation for volatility. Thus, by some measures 2013 can be viewed as having less drama than has existed in some previous years.

However, several factors contributed to cause stress for nonferrous recyclers in 2013: Copper pricing experienced its typical ups and downs throughout the year; Green Fence made its presence known in the container export shipping sector; and the continued slump in stainless steel markets claimed a potential casualty.

Copper prices started the year with some forward momentum, with the January London Metal Exchange (LME) cash settlement price averaging more than $8,000 per metric ton, gaining on the December 2012 figure of $7,960.

The momentum lasted through February before embarking on a decline in March that saw average copper prices fall in four of the next five months, reaching a level of less than $6,900 per metric ton in July. Late summer and autumn brought a slight rebound, with August and September cash buyer transactions averaging more than $7,160 per metric ton.

Measured by turmoil, lost opportunities and financial losses, Operation Green Fence seemed to hit the plastic scrap sector the hardest, followed by recovered fiber shippers. However, nonferrous recyclers were not immune from the impacts.

Even if shippers did not experience rejected shipments of their own, the containers they shipped from ports in Guangzhou in the south of China to Qingdao in the north were often snarled in logjams in 2013 that added expensive drayage and other charges to transactions.

CCIC (China Certification and Inspection Group), AQSIQ and China Customs inspectors also scrutinized nonferrous scrap shipments. Among the things inspectors have been looking for are mismatched documents submitted by importers trying to pay lower duties; items in wire and cable shipments that appear to be obsolete electronics; and pieces of printed circuit board in zorba and other mixed metal shipments.

The long-term slump in the stainless steel scrap sector has put the future of decades-old stainless steel recycler Keywell LLC in jeopardy. The company began closing down a facility in New York in September, and news began circulating shortly thereafter of its difficult financial situation.

The Chicago-based company also filed for bankruptcy protection in September, at the same time it might have agreed to be sold to a competitor. According to a Reuters report, Mark Lozier, Keywell president and CEO, has agreed to sell the firm to U.S.-based Cronimet Holdings Inc., though that transaction has not been finalized.

According to an article in the Wall Street Journal, in court filings Lozier cites slumping nickel prices and slow sales for Keywell’s woes. The company says it had sold only $142 million worth of scrap metal—or roughly 73,000 tons—in the first eight months of 2013, well below its typical level of activity. In its filings, Keywell also cites delays by some big stainless steel customers in taking delivery of metal even after it had already been loaded into rail cars.

As 2013 draws to a close, many recyclers in North America may be thankful they have made it through a rough year while remaining skeptical as to whether 2014 will be markedly better.

 

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

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